Presentation Transcript

1. Record Keeping

   Ag Management Chapter 2
2. Objectives Understand the importance of keeping good records and the type of records used to manage a business Demonstrate 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 summary Understand the importance and use of Hired Labor records, Enterprise Records, Supplemental records and Family Living Records
3. Why Keep Records Comply with income tax reporting requirements Assist in planning and management
4. Kinds of Records Chart of Accounts Provides inventory of information needed to construct financial statements Includes- income & expense ledger, inventory of current assets, machinery account with depreciation schedules, loam amortizations, land account & any other records needed for good management Net Worth Statement Income Statement
5. Good Records Allow You To… Compare past performance with present performance and future goals. Good records show you where you’ve been, where you are and where you are going.
6. The Records System
7. Steps to Setting Up A Records System Select a system suited to your particular needs Select an accounting system suited to your business situation Select a method of reporting farm income and expenses Develop procedures to get exactly the information needed from the records
8. Financial Records Receipts and expenses Give the net worth statement, income statement and cash flow summary
9. Physical Records Show the production of crops and livestock and the usage of inputs Include Crop yield records Livestock births, deaths and weanlings Unpaid family labor Acres planted Bushels harvested
10. 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
11. 3 Levels of Record Keeping Income Tax Purposes Only Income Tax plus some business analysis A complete farm or ranch business analysis
12. Accounting System
13. Accounting Terms Accounting 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 transaction Accrual 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.
14. Procedures
15. 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 entries 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
16. Record Keeping Procedure Steps See text p. 2-8
17. Inventory
18. Reasons to Inventory Get a true picture of the business and nonbusiness financial situation Reflect noncash income and expenses. Provide a management tool To place values on business and nonbussiness assets.
19. Factors that Determine Inventory Date Significance in the business operation Convenience to the operator
20. 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
21. Guidelines For Making Inventory Counts Measure quantities in commonly used units Group like items
22. Methods for Putting Dollar Value on Farm Inventories Book value Current value
23. Book Value Formula Cost - Depreciation=Book Value
24. Current Value Formula Actual cost or market value- Sale Expense= Current Value
25. 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)
26. Cash Inflows and Cash Outflows
27. Cash Receipts 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 receivable paid
28. 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
29. According to Publication 225 The Farmer’s Tax Guide…. 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!!!
30. Non-Business Income Income received from all sources other than farming
31. Sources of Non-Business Income Wages, salaries and other earnings not from farming Investments such as dividends received, stock distributions, partnership income, investment clubs and income from non-farm 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
32. Cash Flow Summary
33. 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
34. Other Useful Records Credit Hired Labor Enterprise Supplemental
35. Why Hired Labor Records are Useful Provide a basis for determining rewards Help determine the real contribution of labor to an enterprise
36. Taxes Involved with Hired Labor Records Income and Social Security (FICA) Unemployment (FUTA)
37. Enterprise Records Accounting records, farm receipts 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
38. Internal Transfers The movement some items from one enterprise to another. Example: Feeding hay from the hay enterprise to cows in the cattle enterprise
39. Supplemental Records Supply additional information which helps provide a more complete record system
40. 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
41. Assignment Complete Chapter 2 Assignment Sheet 1 & 2 p. 21-24 DUE-