# How to Calculate Net Farm Income

Net farm income is calculated at the end of each growing season. This calculation is used to determine how much money the farm generated after all expenses have been paid. There are two methods used to figure out net farm income--cash accounting and accrual accounting. Cash accounting is a simple accounting method using only the money generated or spent. Accrual accounting takes inventory value and other non-cash values into consideration for a more detailed calculation of farm income.

## Cash Accounting

## Step 1.

Find the gross amount of cash from your farm income. List this first on the paper.

## Step 2.

Write any cash expenses from the farm under the gross income. Subtract any cash expenses from the farm to get the net cash farm income.

## Step 3.

Place the net cash farm income in the third slot on the list. Write any depreciation under the net cash farm income.

## Step 4.

Subtract the depreciation from the net cash farm income to get the net farm income from operations.

## Step 5.

Write any gains or losses from the year on the line under the net farm income from operations. Add or subtract this number from the operation income. This gives you the net farm income for the year.

## Accural Accounting

## Step 1.

Find the gross income from your farm. Write this number at the top of the paper.

## Step 2.

Write the inventory adjustments in the line below the gross income; this can be a positive or negative number. Add or subtract this number from the gross income depending on if the adjustment is a profit or loss from inventory. This is the gross farm revenue.

## Step 3.

Write the cash farm expenses underneath the gross farm revenue. Subtract the expenses. Write that total on the next line.

## Step 4.

Write in any depreciation under the last total and subtract it from the total. Subtract or add non-cash expenses or adjustments from the second total. This gives you the net farm income from operations.