Page 13 - Account for Ag - 2019

CH 1] Introduction 1-5

lenders require a net worth statement as a minimum before making any loan and are now requiring risk
projections for particular agricultural loans. The ability to obtain loans for the agricultural business is greatly
facilitated by a set of income statements. Farmers with good records showing their efficiency have a much
easier access to credit than those with poor records or who can only offer general or verbal statements
concerning their earning power.
Government programs provide another reason for keeping records. Acreage control or marketing quota
programs are related to acreage and production of the past. Authorities ordinarily will accept a set of detailed 1
records in establishing the farm operator's acreage allotment or marketing quota. In this, as in certain other
ways, some records increase in value with the passage of time. Records of marketing are required to obtain
federal subsidies on wool. To qualify satisfactorily, farmers must sometimes provide evidence concerning their
seasonal volume of sales.

TYPES OF RECORDS
In terms of accounting for agriculture, the principles and mechanics are applicable as with any other type
of non-agricultural business. There are, however, certain aspects and procedures that are unique to agriculture. It
is important to learn the general principles, rather than the pure routine of how to make bookkeeping entries in
a set of accounts. Agricultural accounting calls for variations in the records to be kept and in the types of
investment, depreciation, receipts, and other transactions to be treated.
While climate, products, and practices may differ among regions and farms, so will the kinds of records
needed and the details of use differ. Large commercial ranches, specialized farms, and agricultural supply
service companies have record keepers and make many entries each day. Some large-scale dairy and crop farms
will need a daily record of feed, labor, and sales while other commercial farms will need only daily records of
feed. Some ranchers want to keep a fairly complete set of accounts for each enterprise; others function with
general-purpose account books furnished by agricultural colleges or business firms.
Consider the type of records and accounts necessary for your operations. Those selected will depend on the
type of agricultural business conducted, the purposes for which the records will be used, and the aid one will
have in summarizing them. Mostly you will need to know how to use records after they have been kept. Some
types of records for use in agricultural management are outlined below.

Records of Income and Expenses
A general set of agricultural accounts may be devised by records of receipts and expenses along with
annual inventories. These financial accounts indicate the monetary outcome during the year for the business or
enterprise. When combined with inventories of products produced or on hand and not sold, or those sold and
produced in earlier years, these provide a basis for computing net income and a return on resources. Alone the
receipts and expenses or inventories are incomplete.
Financial accounts can be kept in varying degrees of detail. The simplest financial accounts and those kept
by the greatest number of farmers are of a single entry nature. These are sufficient to indicate the income for the
business as a whole and easily adapted to pencil and paper. When combined with production records, they also
allow some analysis of the efficiency of various enterprises. Double entry accounting is more complete. It may
be used to show the income for the business as a whole and indicate the net income for each enterprise. With
the accessibility of computers and the accounting software capabilities, these allow the farmer to use a single
entry of data input and have the computer balance for double entry accounting.

Crop Records
The crop record kept on most farms usually shows the acreage planted to each crop, the fertilizer
applications, insecticides used, seed treatments, and cultivations. Over time this record is used to help decide
on fertilizers, crop quotas, and other similar purposes. These crop records are a part of the physical accounts
explained later.

Marketing Records
This record is kept in conjunction with the marketing organization that a farmer might belong to. This
record may be kept by a marketing cooperative or distribution firm to which the farmer sells his product, such
as milk or citrus. Some farmers may keep their own marketing records to check those kept for them by the
marketing firm.

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