Gross Profit is the profit a business makes after subtracting the costs to produce the product.

Revenue - Cost of Goods Sold = Gross Profit

Gross profit helps the business assess the efficiency of using labor and materials to produce their goods.

If you are running a business you must understand the numbers.

A sunk cost is a cost that has already occurred and cannot be recovered, no matter any future action.  When making a future decision you should not consider any sunk costs.  Move on.

Return on Investment (ROI) - is a performance measure used to evaluate the efficiency of an investment.

ROI = (Current Value of Investment - Cost of Investment) / Cost of Investment

Solvency - The ability of the farm business to continue to operate as a viable business regardless of external forces that may occur and the ability of the the farm business to pay all financial obligations if all assets were sold. (Introduction to Agricultural Accounting, Barbara M. Wheeling, 2008)

You want to be successful? 
Would you like to change your life?
Start with yourself.
There are many principles which lead to success and happiness. 
Evaluate the following.
​Which ones do you need to work on?

• Vision
• Work
• Persistence
• Accountability
• Time Management
• Commitment​

How to improve your business:

1. Start with yourself.  Prepare yourself to be successful.
2. Find a problem, then solve it.
3. Understand your numbers. (Sales revenue, gross profit, variable cost, fixed cost)
4. Find the correct customer.
5. Keep personal and business money separate.
6. Manage you cashflow.
7. Expand your offerings.
8. Understand your business debt.  Know where the debt is.
9. Train your team.
10. Continue to improve.  Always learning. 

Managerial accounting is focused on providing information for the farm owner with operational decision making.  This involves collecting and analyzing information about the farm and providing reports.  Examples of questions managerial accounting will help solve:

• Buy or rent land?
• What is the correct size of the farming operation?
• What crops should be grown?
• Do I need to purchase additional equipment?
• How much labor is required for the farm business?

Revenue Recognition is an accrual accounting principle that determines when to record and report a sale.
A sale may be recorded when the following has occurred:

• You have provided something for your customer (product or service) and it is complete
• Agreed upon a price
• An exchange has taken place

Accrued interest is the amount of loan interest which has accumulated since the initial loan or since the last loan payment, which interest has not been paid.  In other words, interest which is due but has not been paid.

For the borrower the accrued interest amount is recorded as a current liability on the balance sheet and as interest expense on the profit and loss statement.

Rate of return on farm assets is a financial ratio which measures the profit earned based on the farm's assets.  

To calculate:  Rate of Return on Farm Assets = Net Income / Total Assets

The higher the ratio, the better.  The greater the number, more profit per dollar of farm assets.

This will help you evaluate if the farm is using the assets efficiently. 

It is important to watch the numbers.  Be Smart!