Why Keep Records Comply with income tax reporting requirements
Assist in planning and management
Slide 3
Kinds of Records Cash Flow Summary Net Worth Statement Income
Statement Detailed Enterprise Analysis
Slide 4
Good Records Allow You To Compare past performance with present
performance and future goals. In other words they show you where
youve been, where you are and where you are going.
Slide 5
The Records System
Slide 6
Steps to Setting Up A Records System 1. Select a record keeping
system suited to your particular needs 2. Select an accounting
system suited to your business situation 3. Select a method of
reporting farm income and expenses 4. Develop procedures to get
exactly the information needed from the records
Slide 7
Financial Records Receipts and expenses Give the net worth
statement, income statemet and cash flow summary
Slide 8
Physical Records Show the production of crops and livestock and
the usage of inputs Include Crop yield records Livestock births,
deaths and weanings Unpaid family labor Acres planted Bushels
harvested
Slide 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
Slide 10
3 Levels of Record Keeping Income Tax Purposes Only Income Tax
plus some business analysis A complete farm or ranch business
analysis
Slide 11
Accounting System
Slide 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 Accural 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.
Slide 13
Procedures
Slide 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 enteries 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 XX
Slide 15
Record Keeping Procedure Steps See text p. 2-8
Slide 16
Inventory
Slide 17
You Must Inventory Get a true picture of the business and
nonbusiness finanacial situation Reflect noncash income and
expenses. Provide a management tool To place values on business and
nonbussiness assets.
Slide 18
Factors that Determine Inventory Date Significance in the
business operation Convenience to the operator Examplessee p.
2-9
Slide 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
Slide 20
Guidelines For Making Inventory Counts Measure quantities in
commonly used units Group like items
Slide 21
Methods for Putting Dollar Value on Farm Inventories Book value
Current value
Slide 22
Book Value Formula Cost - Depreciation=Book Value
Slide 23
Current Value Formula Actual cost or market value- Sale
Expense= Current Value
Slide 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)
Slide 25
Cash Inflows and Cash Outflows
Slide 26
Cash Reciepts 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 recievable paid
Slide 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
Slide 28
According to Publication 225 The Farmers 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!!!
Slide 29
Non-Business Income Income received from all sources other than
farming
Slide 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
Slide 31
Cash Flow Summary Start
Slide 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
Slide 33
Other Records
Slide 34
Other Useful Records Credit Hired Labor Enterprise
Supplemental
Slide 35
Why Hired Labor Records are Useful Provide a basis for
determining rewards Help determine the real contribution of labor
to an enterprise
Slide 36
Taxes Involved with Hired Labor Records Income and Social
Security (FICA) Unemployment (FUTA)
Slide 37
Enterprise Records Accounting records, farm reciepts 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
Slide 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
Slide 39
Supplemental Records Supply additional information which helps
provide a more complete record system
Slide 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
Slide 41
Summary See text p. 2-35
Slide 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:
