Record Keeping

Ag ManagementChapter 2Record KeepingObjectivesUnderstand the importance of keeping good records and the type of records used to manage a businessDemonstrate knowledge of the steps necessary to set up a records system.Identify the different types of accounting systems and their properties.Be able to identify how items should be entered in inventory, why inventory is necessary and how to evaluate items.Understand cash inflows and outflows and how to enter them into a cash flow summaryUnderstand the importance and use of Hired Labor records, Enterprise Records, Supplemental records and Family Living RecordsWhy Keep RecordsComply with income tax reporting requirementsAssist in planning and management

Kinds of RecordsChart of AccountsProvides inventory of information needed to construct financial statementsIncludes- income & expense ledger, inventory of current assets, machinery account with depreciation schedules, loam amortizations, land account & any other records needed for good managementNet Worth StatementIncome Statement

Good Records Allow You ToCompare past performance with present performance and future goals.Good records show you where youve been, where you are and where you are going.

The Records SystemSteps to Setting Up A Records SystemSelect a system suited to your particular needsSelect an accounting system suited to your business situationSelect a method of reporting farm income and expensesDevelop procedures to get exactly the information needed from the records

Financial RecordsReceipts and expensesGive the net worth statement, income statement and cash flow summary

Physical RecordsShow the production of crops and livestock and the usage of inputsIncludeCrop yield recordsLivestock births, deaths and weanlingsUnpaid family laborAcres plantedBushels harvested

Factors For Level of Record SelectionThe amount of information desired from the recordsThe amount of time you can devote to record keepingYour record keeping abilities

3 Levels of Record KeepingIncome Tax Purposes OnlyIncome Tax plus some business analysisA complete farm or ranch business analysis

Accounting SystemAccounting TermsAccounting Period: a regular period of time, as a month or a year, for which an operative statement is drawn up.Cash Accounting: records income and expenses based on the actual cash transactionAccrual 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 themDouble Entry: Keeps track of current changes each time a transaction is made-each credit transaction must be balanced by a debit transaction.Procedures4 Ideas to Help Set Up A Record Keeping SystemLearn about the system before starting to use it.Develop a habit of keeping the record system up-to-date. Make entries regularly and enter complete information.Do most business through a bank accountGet the bank statement each month and reconcile the checkbook and record keeping system

Record Keeping Procedure StepsSee text p. 2-8

InventoryReasons to InventoryGet a true picture of the business and nonbusiness financial situationReflect noncash income and expenses.Provide a management toolTo place values on business and nonbussiness assets.

Factors that Determine Inventory DateSignificance in the business operationConvenience to the operator

Most Popular Inventory Date for Farmers and RanchersJanuary 1The 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 inventoriedSee p. 2-10 and 2-11

Guidelines For Making Inventory CountsMeasure quantities in commonly used unitsGroup like items

Methods for Putting Dollar Value on Farm InventoriesBook valueCurrent value

Book Value FormulaCost - Depreciation=Book Value

Current Value Formula Actual cost or market value- Sale Expense= Current Value

Other Methods of ValuationCost Minus DepreciationCost Minus DepletionMarket CostNet Market PriceFarm Production CostCost or Market ValueActual Amount (Value of Liability Owed)

Cash Inflows and Cash Outflows Cash Receipts are Funds Flowing IN and IncludeBusiness IncomeNonbusiness IncomeIncome from the sale of items purchased for resaleIncome from the sale of capital assetsMoney borrowed or accounts receivable paid

Cash Expenditures Flowing OUTBusiness expensePurchase of items for resalePurchase of capital assetsPrincipal paid on accounts payableNonbusiness investmentsFamily Living Expense

According to Publication 225 The Farmers Tax Guide.Crop salesGovernment paymentsCustom workPatronage dividendsRefundsRe-salesCash rentCommodity Credit LoansCrop InsuranceLivestock ProductsRaised Non-breeding LivestockItems purchased for resaleCapital SalesARE ALL CONSIDERED FARM INCOME!!!

Non-Business IncomeIncome received from all sources other than farming

Sources of Non-Business IncomeWages, salaries and other earnings not from farmingInvestments such as dividends received, stock distributions, partnership income, investment clubs and income from non-farm businessDepletion income from oil and gas royalties, mineral lease bonuses, gravel sales, and timber salesInterest received from savings accounts, NOW checking accounts, and savings bondsRental income from rental houses, for use of farm land, income received from sale of crop sharesNon-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 expensesCash Flow Summary Cash Flow SummaryA record of the cash inflows and outflows of the business for a yearUsed to compare to the cash flow projection to determine if the operation is staying within budget and to help make business decisions

Other Useful RecordsCreditHired LaborEnterpriseSupplementalWhy Hired Labor Records are UsefulProvide a basis for determining rewardsHelp determine the real contribution of labor to an enterprise

Taxes Involved with Hired Labor RecordsIncome and Social Security (FICA)Unemployment (FUTA)

Enterprise RecordsAccounting records, farm receipts and expenses that are directly related each specific farm enterprise3 General categoriesMajor EnterpriseMinor EnterpriseOverhead EnterpriseItems that CAN NOT be allocated to farm enterpriseCapital Sales and PurchasesInflow & Outflow from loansNon-farm receipts and expenses

Internal TransfersThe movement some items from one enterprise to another.Example: Feeding hay from the hay enterprise to cows in the cattle enterprise

Supplemental RecordsSupply additional information which helps provide a more complete record system

4 Good Reasons to Keep Family Living RecordsHelp identify family living receipts and expensesAssist the farmer or rancher in accounting for income and expenses that are not listed in the farm recordsHelp develop future family living budgetsHelp identify nonfarm business incomes and expenses

AssignmentComplete Chapter 2 Assignment Sheet 1 & 2 p. 21-24DUE-