In contrast to the balance sheet, the income statement can be regarded as a video rather than a still picture. Whereas the balance sheet shows the financial position of the farm on a particular date, the income statement describes the results of ongoing financial transactions taking place on the farm. A key purpose of keeping an income statement, a record of receipts and expenditures, is that it allows you to calculate the farm's income to date for that year. Although a receipt commonly refers to a written record of a financial transaction, in accounting terminology a receipt usually represents incoming cash. A sale of corn or livestock would be an example of a receipt used on the income statement.
Expenditures come from three primary sources.
These are current expenses, decreases in supplies, and depreciation of machinery, buildings, etc. Depreciation , which refers to the wear and tear on capital inventory, can be measured using various formulas depending on your purpose. Remember, land is treated differently than machinery or buildings because land is not considered to wear out. As with the balance sheet, you may want to use an available system, or you may find that customizing your own better fits your particular farm operation. Again, the system used is not a significant factor.