Record Keeping

1. Record Keeping Ag Management Chapter 2

2. Why Keep Records • Comply with income tax reporting requirements • Assist in planning and management

3. Kinds of Records • Cash Flow Summary • Net Worth Statement • Income Statement • Detailed Enterprise Analysis

4. 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.

5. The Records System

6. Steps to Setting Up A Records System • Select a record keeping 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

7. Financial Records • Receipts and expenses • Give the net worth statement, income statement and cash flow summary

8. 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

9. 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

10. 3 Levels of Record Keeping • Income Tax Purposes Only • Income Tax plus some business analysis • A complete farm or ranch business analysis

11. Accounting System

12. Defining 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.

13. Procedures

14. 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

15. Record Keeping Procedure Steps • See text p. 2-8

16. Inventory

17. You Must 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.

18. Factors that Determine Inventory Date • Significance in the business operation • Convenience to the operator • Examples—see p. 2-9

19. 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

20. Guidelines For Making Inventory Counts • Measure quantities in commonly used units • Group like items

21. Methods for Putting Dollar Value on Farm Inventories • Book value • Current value

22. Book Value Formula • Cost - Depreciation=Book Value

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

24. 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)

25. Cash Inflows and Cash Outflows

26. 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

27. 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

28. 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!!!

29. Non-Business Income • Income received from all sources other than farming

30. 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, 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

31. Cash Flow Summary X

32. 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

33. Other Records

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. Summary • See text p. 2-35

42. 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: