Transcript Why keep records? -income tax reporting requirements

Farm & Ranch Business
Management
Chapter #2
Record Keeping
Why keep records?
• income tax reporting requirements
– assist in planning and management
– obtaining credit
What kinds of records need to be
kept?
1) Cash Flow Statement:
monthly cash inflows and outflows
2) Net Worth Statement:
asset minus liabilities
What kinds of records need to be
kept?
• Cash Flow Projection:
estimate monthly cash inflows and
outflows
• Whole Farm Budgets:
compares alternative courses of action
• Risk Management Plan:
statistical calculation of the probabilities
of success
What steps need to be taken to set
up a record system?
1) Select a record keeping system
2) Select an accounting system
3) Select a method of reporting farm
income and expenses
4) Develop a procedure to get exactly the
information needed from the records
What kinds of records are there?
• Financial
– receipts & expenses
– net worth
– income statement
– cash flow
• Physical
– production records of crops/livestock
• crop yield
• birth, wean wt.
What are the types of accounting
systems?
• Double entry system:
– each credit transaction must be balanced
by a debit transaction
• Single entry system:
– no balance is maintained
Record Keeping
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Learn about Record Keeping
Keep Records Up to Date
Bank Accounts
Bank Statements
Record Keeping
• Enter the beginning and end of the year
inventories
• Set up depreciation schedules
• Receipts, expenses, and production records
• Complete the farm analysis
(income taxes, financial statements,
enterprise analysis, cash flow)
What is an Inventory?
• list of all assets and values
Why keep an inventory?
• get a true picture (on net worth
statement)
• beginning to ending inventory change
• must use in accrual method
• place a value on assets
What items are inventoried?
• all unsold items at end of tax year
– crops in storage
– raised livestock
• all items purchased for resale but
not yet sold
– livestock
What items are inventoried?
• hedging contracts
• crop and livestock supplies
• capital assets
– breeding livestock
– machinery & equipment
– buildings & land
• accounts receivable & payable
• liabilities
Guidelines for making
inventories
• measure quantities in commonly used
units (bushels, tons, cwt., pounds)
• group like items (cows, bulls,
replacement heifers, calves)