Farm

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Farm Ranch Business Management

• Chapter 2
• Record Keeping

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Why keep records?

• income tax reporting requirements
• assist in planning and management
• obtaining credit

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What kinds of records need to be kept?

• 1) Cash Flow Statement monthly cash inflows and
  outflows
• 2) Net Worth Statement asset minus liabilities
• shows financial condition of business
• lists all assets values, liabilities values
• also known as a balance sheet

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What kinds of records need to be kept?

• 3) Income Statement shows profit for a given
  time (1 year)
• also known as a Profit/Loss Statement
• 4) Detailed Enterprise Analysis identifies
  factors that affect the profitability and
  efficiency of the individual enterprises
• Records allow you to compare past performance
  with present performance and future goals

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What kinds of records need to be kept?

• Cash Flow Projection estimate monthly cash
  inflows and outflows
• Whole Farm Budgets compares alternative courses
  of action
• Risk Management Plan statistical calculation of
  the probabilities of success

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What steps need to be taken to set up a record
system?

• 1) select a record keeping system suited to their
  particular needs
• 2) select an accounting system suited to your
  business situation
• 3) select a method of reporting farm income and
  expenses
• 4) develop a procedure to get exactly the
  information needed from the records

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What kinds of records are there?

• Financial
• receipts expenses
• net worth
• income statement
• cash flow
• Physical
• production records of crops/livestock
• crop yield
• birth, wean wt.

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What are the types of accounting systems?

• Double entry system
• each credit transaction must be balanced by a
  debit transaction
• Single entry system
• no balance is maintained

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What methods are used to report income and
expenses?

• 1) Cash Method records of actual cash
  transactions
• income expenses recorded in year that actually
  received or paid
• no inventory kept for unsold products or supplies
• cost of items bought for resale are not deducted
  until year actually sold

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Cash Method

• provides flexibility in choosing when to take
  income and deduct expenses
• if the farmer shows a profit, cash is available
  to pay income taxes
• expenses are not deducted until cash is paid
• inventories must be made to compute financial
  statements
• income may be erratic

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Accrual Method

• income and expenses reported when they actually
  occur
• uses an inventory to match income expense to
  the appropriate time period
• levels out peaks and valleys in income
• detailed and complex required
• all items must be inventoried

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Accrual Method

• easier to determine net farm income and analyze
  the strengths and weaknesses of the farm business
  from year to year
• work with abstract figures (may only show profit
  on paper)
• actual cash position may be difficult to estimate

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Record Keeping Procedures

• learn about record keeping system before you
  begin
• develop a habit of keeping record up to date
• do most business through a bank account (also
  identify items on deposit slips borrowed money,
  gift, bushels, pounds)
• get the bank statement each month and reconcile
  the checkbook and record keeping system

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Record Keeping Steps

• enter the beginning of the year inventories
  (owned assets, accounts payable, beginning cash
  balance)
• set up depreciation schedules
• enter receipts, expenses, and production records
• enter end of year inventories
• complete the farm analysis (income taxes,
  financial statements, enterprise analysis, cash
  flow)

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What is an Inventory?

• list of all assets and values

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Why keep an inventory?

• get a true picture (on net worth statement)
• beginning to ending inventory change
• must use in accrual method
• place a value on assets

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What items are inventoried?

• all unsold items at end of tax year
• crops in storage
• raised livestock
• all items purchased for resale but not yet sold
• livestock

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What items are inventoried?

• hedging contracts
• crop and livestock supplies
• capital assets
• breeding livestock
• machinery equipment
• buildings land
• accounts receivable payable
• liabilities

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Guidelines for making inventories

• measure quantities in commonly used units
  (bushels, tons, cwt., pounds)
• group like items (cows, bulls, replacement
  heifers, calves)

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How do you place a value on inventory items?

• Cost minus depreciation
• Cost minus depletion value changes as resources
  are removed (gravel pit)
• Market cost actual cost (used within a short
  time, feed, seed)
• Net Market Price if you sell the product (wheat)

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How do you place a value on inventory items?

• Farm Production Costs actual amount invested in
  crop
• Actual Amount value of liability owed

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What are Cash Receipts?

• cash flowing into a business
• business income
• crop sales,Government payments, patronage
  dividends (co-ops), resales (only net gain is
  taxed), cash rent, Crop insurance payments,
  raised nonbreeding livestock, capital sales,
  wages, dividends received, stock distributions,
  oil gas royalties, interest received from
  savings, rental income, gifts, inheritance, life
  insurance

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What are Cash Expenditures?

• money flowing out of a business
• business expenses
• hired labor, repairs maintenance, interest
  paid, feed, seeds, fertilizer chemicals,
  machine hire, supplies (useful life lt1 yr.),
  breeding fees, veterinary medicine, fuel oil,
  storage, taxes (real estate, personal property),
  insurance (on farm assets), utilities, cash rent,
  freight trucking, items purchased for resale,
  capital purchases, money paid on accounts
  payable

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Hired Labor Records

• social security and unemployment taxes may need
  to be paid by employer

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