Record Keeping
Ag Management
Chapter 2
Why Keep Records
 Comply with income tax reporting requirements
 Assist in planning and management
Kinds of Records
 Cash Flow Summary
 Net Worth Statement
 Income Statement
 Detailed Enterprise Analysis
Good Records Allow You To…
 Compare past performance with present
performance and future goals.
 In other words they show you where you’ve been,
where you are and where you are going.
The Records System
Steps to Setting Up A Records
System
Select a record keeping system suited to your
particular needs
2. Select an accounting system suited to your
business situation
3. Select a method of reporting farm income and
expenses
4. Develop procedures to get exactly the
information needed from the records
1.
Financial Records
 Receipts and expenses
 Give the net worth statement, income statemet
and cash flow summary
Physical Records
 Show the production of crops and livestock and
the usage of inputs
 Include
 Crop yield records
 Livestock births, deaths and weanings
 Unpaid family labor
 Acres planted
 Bushels harvested
Factors For Level of Record Selection
 The amount of information desired from the
records
 The amount of time you can devote to record
keeping
 Your record keeping abilities
3 Levels of Record Keeping
 Income Tax Purposes Only
 Income Tax plus some business analysis
 A complete farm or ranch business analysis
Accounting System
Defining Accounting Terms
 Accounting Period: a regular period of time, as a
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month or a year, for which an operative statement is
drawn up.
Cash Accounting: records income and expenses based
on the actual cash transaction
Accural Accounting: reports income and expenses in
the time period they occur. Income when it is
recoverable and expenses when they are payable.
Single Entry: List receipts and expenses without any
effort to maintain a current balance between them
Double Entry: Keeps track of current changes each
time a transaction is made-each credit transaction
must be balanced by a debit transaction.
Procedures
4 Ideas to Help Set Up A Record
Keeping System
 Learn about the system before starting to use it.
 Develop a habit of keeping the record system up-
to-date. Make enteries regularly and enter
complete information.
 Do most business through a bank account
 Get the bank statement each month and reconcile
the checkbook and record keeping system
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Record Keeping Procedure Steps
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See text p. 2-8
Inventory
You Must Inventory
 Get a true picture of the business and
nonbusiness finanacial situation
 Reflect noncash income and expenses.
 Provide a management tool
 To place values on business and nonbussiness
assets.
Factors that Determine Inventory
Date
 Significance in the business operation
 Convenience to the operator
 Examples—see p. 2-9
Most Popular Inventory Date for
Farmers and Ranchers
 January 1
 The ending inventory for one year is also the
beginning inventory for the next.
 Inventories need to be completed at the same
time each year to ensure accuracy.
 Items to be inventoried
 See p. 2-10 and 2-11
Guidelines For Making Inventory
Counts
 Measure quantities in commonly used units
 Group like items
Methods for Putting Dollar Value on
Farm Inventories
 Book value
 Current value
Book Value Formula
 Cost - Depreciation=Book Value
Current Value Formula
 Actual cost or market value- Sale Expense=
Current Value
Other Methods of Valuation
 Cost Minus Depreciation
 Cost Minus Depletion
 Market Cost
 Net Market Price
 Farm Production Cost
 Cost or Market Value
 Actual Amount (Value of Liability Owed)
Cash Inflows and Cash Outflows
Cash Reciepts are Funds Flowing IN
and Include
 Business Income
 Nonbusiness Income
 Income from the sale of items purchased for
resale
 Income from the sale of capital assets
 Money borrowed or accounts recievable paid
Cash Expenditures Flowing OUT
 Business expense
 Purchase of items for resale
 Purchase of capital assets
 Principal paid on accounts payable
 Nonbusiness investments
 Family Living Expense
According to Publication 225 The
Farmer’s Tax Guide….
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Crop sales
Government payments
Custom work
Patronage dividends
Refunds
Re-sales
Cash rent
Commodity Credit Loans
Crop Insurance
Livestock Products
Raised Non-breeding Livestock
Items purchased for resale
Capital Sales
ARE ALL CONSIDERED FARM INCOME!!!
Non-Business Income
 Income received from all sources other than
farming
Sources of Non-Business Income
 Wages, salaries and other earnings
 Always include gross wages as non farm income and deductions
from wages as non-farm expenses
 Investments such as dividends received, stock distributions,
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partnership income, investment clubs and income from nonfarm business
Depletion income from oil and gas royalties, mineral lease
bonuses, gravel sales, and timber sales
Interest received from savings accounts, NOW checking
accounts, and savings bonds
Rental income from rental houses, for use of farm land, income
received from sale of crop shares
Non-taxable income such as gifts, inheritances, life insurance
proceeds, interest on tax-free bonds, social security benefits,
money borrowed, payment from loans to other people and
reimbursement of non-business expenses
Cash Flow Summary Start
Cash Flow Summary
 A record of the cash inflows and outflows of the
business for a year
 Used to compare to the cash flow projection to
determine if the operation is staying within
budget and to help make business decisions
Other Records
Other Useful Records
 Credit
 Hired Labor
 Enterprise
 Supplemental
Why Hired Labor Records are Useful
 Provide a basis for determining rewards
 Help determine the real contribution of labor to
an enterprise
Taxes Involved with Hired Labor
Records
 Income and Social Security (FICA)
 Unemployment (FUTA)
Enterprise Records
 Accounting records, farm reciepts and expenses that
are directly related each specific farm enterprise
 3 General categories
 Major Enterprise
 Minor Enterprise
 Overhead Enterprise
 Items that CAN NOT be allocated to farm enterprise
 Capital Sales and Purchases
 Inflow & Outflow from loans
 Non-farm receipts and expenses
Internal Transfers
 The movement some items from one enterprise to
another.
 Example: Feeding hay from the hay enterprise to
cows in the cattle enterprise
Supplemental Records
 Supply additional information which helps
provide a more complete record system
4 Good Reasons to Keep Family
Living Records
 Help identify family living receipts and expenses
 Assist the farmer or rancher in accounting for
income and expenses that are not listed in the
farm records
 Help develop future family living budgets
 Help identify nonfarm business incomes and
expenses
Summary
 See text p. 2-35
Assignment
 Chapter 2 Assignment Sheets 1 & 2
 The table for Assignment Sheet 2 #2 will be e-
mailed to you.
 DUE DATE:
 Review Sheet
 DUE DATE
 Chapter 2 Quiz on:
 Chapter 1 & 2 Test on: