Bookkeeping and Farm EconomicsChapter 1: Daily RecordingChapter 2; The Consultancy Centre's basic accountancy workChapter 3: Making out the Balance SheetChapter 4: The Managerial AccountsChapter 5: The Concept of Gross MarginChapter 6: Production and Financial PlanningChapter 7: The Russian Tax Account

Chapter 1: Daily recordingThe daily recording is entering all amounts as you receive or pay them. It is a receipt, whenyou put money into the purse or deposit money on your bank account, and it is anexpenditure, when you use the money.

TranslationMÆLK, SVIN, ÆG MM. Milk, Pigs, Eggs, etc.KRAFTFODER, GØDNING,MM.

Protein, Fertilizer,etc.

.

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The Cash BookThe purpose of systematically entering all receipts and expenditures is to create a basis forworking out the economic result in a certain period -- it is not a goal in itself to work with thefarm's bookkeeping. There are two main reasons for farmers to make bookkeeping andaccounts:

Public authorities' demands for bookkeeping and accounts: Documentation to beused as a basis for taxation. The authorities can require some certain ways of howbookkeeping should be made.

Farmer's own demands for bookkeeping and accounts. Every independent farmerneeds to have a general view of the economic state of his business. It is the basis fordecisions on the future management of the farm.

The bookkeeping is the basis for all kinds of accounts. Not to hide the incomes, Danishbookkeeping law provides these rules for recording in the cash book:

With ink or ball-point pen In date order and with voucher numbers Without empty spaces between entries Mistakes corrected in a way, so that they can still be read On numbered pages With frequent cash statements

The cash book, accounts, vouchers, etc., must be kept for five years, according to Danishrules.

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How to record in the Cash BookThe cash book shown is made for Danish farmers' common computer accounting system.The farmer records in the cash book page and at the end of the month he sends it withenclosed vouchers to the farmers' consultancy centre (see Chapter Two ).

You begin recording at a new page by entering name, address, month and year. Bringforward the last month's cash balance (1281.98 kroner) and last month's bank balance (debt41,632.33 kroner).

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TranslationNavn NameAdresse AddressKasseregnskab Cash BookIndbetalinger/indtægter ReceiptsDato DateTekst TextBilag nr. Voucher No.Stk. el. kg QuantityKasse CashCheck/KK Cheque AccountKonto nr. Account no.Beholdning vedbegyndelse

Balance bybeginning

tilgode (positive amount)I alt TotalSkyld ved slutning Debt by endKassedifference Cash DeficiencyBalance Balance

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TranslationUdbetalinger/Udgifter ExpenditureBeholdning vedslutning

Balance by End

tilgode (positiveamount)

Kassedifference Cash DeficiencyBalance Balance

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ItemsAn item is consisting of the following pieces of information:

a. Date for payment of the amount. Note, that you should not mistake it for the date ofinvoice.

b. Text describing the item, so that others, that continue the bookkeeping work knowhow to treat it. From whom did you receive the money, and why? If the vouchercontains of more than one sort of receipt or expenditure, you should use a new linefor each sort.

c. Number of voucher is a very useful information, which helps the bookkeeping worklater.

d. Quantity is information of number of animals purchased or sold, or kilograms ofgrain sold. In the example it is one sow sold.

e. The amount received or paid

Concerning amounts paid by cheque, it is useful to show the cheque's number. It lightensthe work of controlling the bank account.

TranslationSlagteriafregning Slaughterhouse statementAt indsætte på Dereskonto

To be deposited on your bankaccount

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TranslationDato DateTekst TextBilag nr. Voucher

No.Kvantum (stk. el.kg)

Quantity

Beløb Amount

AmountsThe amount shall be entered in the cash column, if it is a payment in cash. You should usethe bank column, if it is a movement on the business bank account. You can makecorrections by striking out, like shown in the example.

Which level of specification you should use in entering the items and amounts depends onthe level of specification, you wish in the final accounts. If you want to know the results ofindividual crops, you must show sales of say barley and oats separately. Too, it depends onyour agreement with the consultancy centre.

It is important to be consistent in one's bookkeeping and use one principle, when enteringspecifications in the cash book. If you are in doubt, it can be useful to look in the pages ofearlier months.

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Some items contain both buying and selling and are received every month or every week.An example is the dairy statement in the example below. It may be practically to enter onlyone amount, and letting the consultancy centre split the amount later. This makes thecontrol of the bank account easier.

TranslationMejeriafregnings-kopi

DairyStatement

At udbetale To be paid

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Current AccountExternally: When payment is not following delivery of goods, it may be an advantage to usethe current accounting method. Using this method is making the work easier for the farmer,because he lets the consultancy centre distribute the items later.

Internally: When you draw money from the business bank account into cash, and viceversa, you must show the amount in two places. You can see this in the example at the 9thday: The amount 207,45 kroner is shown both as a cash income and as a bank cost.

Note, that if you draw money from another bank account, you should only enter the amountin the column, that "receives" the amount. You can see this in the example at the 5th day:The amount 1500 kroner is shown only in the bank column.

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Private ConsumptionCosts for private consumption are not tax deductible, but you should all the same enterthese costs in the cash book. The easiest way is at intervals to draw larger amounts for yourprivate wallet, and then to use this money for all private costs.

Cash BalancingCash Balancing is an important part of all bookkeeping. By balancing cash, you ensure, thatall items are correctly entered the cash book. This is the principle:Cash BalancingCash Balance at beginning +Receipts

12291.88

minus Expenditures of the Period 12125.68----------

= calculated Cash Balance 166.20minus counted Cash Balance 158.90

----------= Cash Deficiency 7.30

When you compare the calculated and the counted balances it is possible to find errors:wrong amounts, wrong additions, amounts in wrong columns, etc.

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Bank Account BalancingBalancing the bank account is in principle as cash balancing. In this example, the farmerhas a cheque account with overdraft (negative balance) and for this reason some of thecalculations are altered.

You start with your debt to the bank, add all expenditures of the period, and subtract allreceipts of the period:Bank Account BalancingBank Account Balance at beginning (negative) 41105.13plus 18 amounts drawn 12160.47

----------= 53265.60minus 5 amounts deposited 10684.76(not slaughterhouse payment of September)

----------=Bank Account Balance at August 31(negative)

42580.84

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TranslationDato DateTekst TextHævet DrawnIndsat DepositedSaldo BalanceOverført Amount carried

forwardMejeri DairySlagteri Slaughterhouse

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Your own cheque accounts and the bank's statement will not always coincide, because ofpostponement. Usually, you need to make corrections like this to make them correlate:

Correction to the Bank's Statement of AccountBank's Statement of account August 30 37191.44plus 7 cheques of August, entered in September 5389.40(not cheque no. 745 of September)

----------= 42580.84minus receipts of August, entered in September(none)

0.00

((no slaughterhouse payments of September)= 42580.84

Value Added Tax and Turnover TaxYou can use different methods in calculating Value Added Tax and Turnover Tax (NDS andspecial tax) in bookkeeping. With the use of computers the consultancy centre only needs touse certain account numbers or certain codes.

SummaryHere are some good rules for a correct bookkeeping:

Enter items in the cash book every day you buy or sell You may do it at a certain hour every day Do choose the text with care, so that others will understand it Add voucher numbers on all vouchers, and use these numbers in the cash book Collect expenditures in few payments Enter amounts in net figures -- the consultancy centre can correct it later. Do make frequent cash statements

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Chapter 2: The Consultancy Centre's basic accountancyworkIn principle, the farmer can himself make all of the accountancy work. Under mostcircumstances, however, he will have advantage of using the farmers' consultancy centre tothe work between the balanced cash book and the finished accounts.

TranslationKasselister Cash BookRegnskabsmaterialer

Accounts

Regnskabskontor ConsultancyCenter

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The Purposes of Farmers' AccountsThere are two main reasons for farmers to make bookkeeping and accounts:Public authorities' demands for bookkeeping and accounts:

Value-Added-Tax Accounts Income Tax Accounts Wage Accounts

Farmer's own demands for bookkeeping and accounts: Managerial Accounts Use of the results for planning production and economy

All of these tasks can be taken care of at the Consultancy Centre.

Basic bookkeepingWhen the farmer's Cash Book and the matching vouchers arrive to the Consultancy Centre,it is treated in this way to be turned into accounts:

Checking and auditing: All additions and balances are controlled, and every item in theCash Book is compared with the vouchers. Needed transfers of i.e. interest and repaymentshould be made at this moment.

Choosing an account number for every item: In the Cash Book the items are enteredchronologically. It means, that repair bills, sale of grain and private costs are all mixed up,according to the day of payment. In the account materials we wish to show these items inanother order, with all kinds of fodder in one group, all private costs in another group, etc.This is done by giving an account number to every item, and afterwards sorting all items bythe account numbers.

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The total number of single accounts is decided according to these considerations:

Many single accounts, if Farmers need detailed specification in the final accounts

Few single accounts, if: Farmers are satisfied with a general overview, You wish less work controlling the bookkeeping, or There are technical limits in the bookkeeping system

In the example below, you should note, how the code "1" in column "M" divides the amount10614,63 from sale of 12490 kg wheat into two:

The item in the Cash Book:Sold wheat 12490

kg10614.63kroner

account 1-3131

is divided into two items in the Item List:Sold wheat 12490

kg9230.11kroner

account 3131

VAT ofsale

1384.52kroner

account 9700

TranslationSolgt hvede Sold wheat- do -moms

Sold wheat,VAT

Item ListIn the Cash Book the single items are shown in the order they are entered. When theConsultancy Centre employees have added an account number for every item, it is possibleto make a sum per account. The result is called an Item List.

The users of the accounts (the farmer, his bank, or the tax officials) can follow every singleitem from the Cash Book through the Item List to the final Tax Account and ManagerialAccount.

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If the farmer sends in his Cash Book and vouchers and informs the Consultancy Centre ofdebts and amounts due to him, then he can use the Item List and other materials to makethe right decisions in managing his farm.

TranslationHorizontallyKONTO Account No.MD MonthBILAG Voucher No.TYPE Type of itemMOMS Amount of VAT

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NETTOBELØB Amount withoutVAT

...Vertically2910 PRIVATLÅN Private credit2921 MEJETÆRSKERLÅN Combiner credit3131 HVEDE SALG Sale of wheat3550 RAPS Rape7437 VEJMATERIALER Materials for road7452 MURER Bricklayer7532 REPARATION AFDRÆN

Repair of drain

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Chapter 3: Making out the Balance SheetIn the balance sheet you enter all what you own, and all what you owe. The difference iscalled Net Capital. The Balance Sheet is an important part of the accounts, because errorsinfluence directly on the period's result.

The Balance Sheet in the AccountsTo make regular accounts for a period is needed Balance Sheets at beginning and at end.In the Balance Sheets you enter all what you own, and all, what you owe. The difference iscalled net capital (or net debt, if negative)

The Balance Sheet is an important part of any accounts: you can make accounts containingonly of two Balance Sheets plus information of how much money paid to the owner. Thenyou can calculate the profit in this way:

The most simple sort ofaccountNet Capital at end 333211- Net Capital at beginning -307374

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+ Private consumption of the year +48424= Surplus of the year = 74261.In making out the Balance Sheet, you have several problems. What is the value of land,buildings, livestock, fertilizer in the fields, etc.?

Be careful in making up the physical assets, the supposed value is directlyinfluencing the surplus of the period

Do use the identical principles at beginning and at end

Examples of errors in balance at end: The livestock is 10000 kroner too low, and stocks are5000 kroner too low. The surplus from above will then be altered in this way:

Example 1 Witherror

Without error

Net Capital at end 318211 333211- Net Capital at beginning -307374 -307374+ Private consumption of theyear

+ 48424 + 48424

= Surplus of the year = 59261 = 74261.The surplus is lowered, because the assets are valued too low.

Another example: Error in both balance at beginning and balance at end. Value of livestockis 10000 kroner too low, and stocks are 5000 kroner too low.

Example 2 Witherror

Without error

Net Capital at end 318211 333211- Net Capital at beginning -292374 -307374+ Private consumption of theyear

+ 48424 + 48424

Surplus of the year = 74261 = 74261.When you make the same error at beginning and at end, the surplus will be unchanged --but the balances are still wrong.

Take care when you make up the values in the balances. They influence the surplusdirectly

Do use the same principles both at beginning and at end

If you make up the values in an inaccurate way, it may influence the single year's resultessentially

Balance at end of year1Assets LiabilitiesReal Estate 65535

0Mortgagedebt

381649

Machines 61188Livestock 13325

0Bank debt 57821

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Stock 5250 Other debt 114101Securities 11798Car 15876Outstanding accounts 2115Cash 1956 Net Capital 333212Sum 88678

3Sum 886783

.The figures in the balances at the end of one year and at beginning of the next year areidentical. That gives coherence between the different years

Balance at beginning of year2Assets LiabilitiesReal Estate 65535

0Mortgagedebt

381649

Machines 61188Livestock 13325

0Bank debt 57821

Stock 5250 Other debt 114101Securities 11798Car 15876Outstanding accounts 2115Cash 1956 Net Capital 333212Sum 88678

3Sum 886783

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Chapter 4: The Managerial AccountsThe managerial account is meant for the use of the farmer. It helps him manage the farm.You calculate the Managerial Accounts by combining the cash turnover, balance atbeginning, and balance at end.

An Example with one AccountProfit and Loss Account Balance at beginningDebit Credit Assets Liabilities

Net Capital atbeginning

<= Net Capital atbeginning

Sum SumEvery entry, that isdiminishing the NetCapital throughoutthe year

Every entry, that isincreasing the NetCapital throughoutthe year

Cash Book Account<= Receipts Expenditures

(many entries...) (many entries...)Sum Sum

PrivateConsumption, etc.

IncomeBalance at endAssets Liabilities

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Net Capital at end => Net Capital at endSum Sum Sum Sum.This Profit and Loss Account includes all kinds of results. In the following example we willdivide the account.

An Example with Four AccountsBusiness AccountDebit CreditBought Animals 8704 Sold Grain 15491Repair Machines 17619 Sold Milk 145213Wage Paid 26515 Sold Cattle 55673Energy 6339 Sold pigs 115221Other Costs 165322 Increase in

livestock37925

Depreciation 30731Business Surplus 114293Sum 369523 Sum 369523.Income AccountDebit CreditPaid interest 49785 Received Interest 1799Paid Land Rent 11910 Business Surplus 114293

Surplus from Business no.2

0

Income 54397 Wages earned 0Sum 369523 Sum 369523.Private AccountDebit CreditCash Private Expenditure 42025Cash Differences 125Cost for car 6274 Private

Consumption48424

Sum 369523 Sum 369523.Profit and Loss AccountDebit CreditPaid Income Tax 8916 Net Capital at

beginning307374

Investment in Buildings 17060 Depreciation Buildings 5497Private Consumption 48425 Public Money received 28120Net Capital at end 33321

1Dotation to family 4224

Gift received 8000Income 54397

Sum 407612

Sum 407612

.

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By dividing the profit and loss account in four accounts as shown, you achieve a moreusable approach. To show how the amounts are moved, we use three sums:

The Sum of Business Surplus The Sum of Income The Sum of Private Consumption

The Business AccountThe Business Account shows, what the farmer earns in his primary business. The BusinessAccount contains all business receipts and expenditures, in cash as well as non-cash.

Business AccountDebit CreditBought Animals 8704 Sold Grain 15491Repair Machines 17619 Sold Milk 145213Wage Paid 26515 Sold Cattle 55673Energy 6339 Sold pigs 115221Other Costs 165322 Increase in

livestock37925

Depreciation 30731Business Surplus 114293Sum 369523 Sum 369523.The Credit Column:

Cash receipts like sold grain. This information comes from the Cash Book Account.Increase in livestock value. This is calculated using the information from the balances atbeginning and at end. If the result is a decrease, the figure should be shown in the DebitColumn. Changes in business stocks are treated in the same way.

Livestock at end 133250- Livestock atbeginning

-95325

= Increase in livestock 37925.The Debit Column:

Cash expenditures like cost for bought animals, from the Cash Book Account. Depreciation is calculated as the difference between estimated value of assets at

beginning and at end, e.g. using information from the balances at beginning and atend.

Business Surplus: This is the result of the Business Account calculations.

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The Income AccountThe Income Account calculates the farmer's total income from different businesses, paidinterest, etc.

Income AccountDebit CreditPaid interest 49785 Received Interest 1799Paid Land Rent 11910 Business Surplus 114293

Surplus from Business no.2

0

Income 54397 Wages earned 0Sum 369523 Sum 369523

The Credit Column Received interest from the Cash Book The Business Surplus is moved from the Business Account Debit Column to the

Income Account Credit Column Surplus from other businesses from the Cash Book, etc. Wages earned

The Debit Column: Paid Interest on credits, paid land rent, etc. Loss on business, if any Income: This is the result of the Income Account Calculations

The Private AccountThe Private Account calculates the private consumption.

Private AccountDebit Credit

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Cash Private Expenditure 42025Cash Differences 125Cost for car 6274 Private

Consumption48424

Sum 369523 Sum 369523

The Credit Column contains Private Consumption, which is the result of the private accountcalculation. The Debit Column contains different private costs.

The Profit and Loss AccountThe Profit and Loss Account collects all of the formerly mentioned movements. It offers acalculation of the Net Capital at end. If the figure calculated this way is identical with theformer, the accounts are connected correctly.

Profit and Loss AccountDebit CreditPaid Income Tax 8916 Net Capital at

beginning307374

Investment in Buildings 17060 Depreciation Buildings 5497

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Private Consumption 48425 Public Money received 28120Net Capital at end 33321

1Dotation to family 4224

Gift received 8000Income 54397

Sum 407612

Sum 407612

.The Credit side contains all entries, that will increase Net Capital at end:

Net Capital at beginning from the Balance at beginning Depreciation of Buildings is added here, if the entered values of buildings are

lowered with this amount. Otherwise the Profit and Loss account will not balance. Money received from state, dotations, gifts from family -- all costs, that are not part

of ordinary income Income from the Income Account

The Debit side contains all entries, that will diminish Net Capital at end: Paid Income Tax, from Cash Book Investments in Buildings are supposed not to be added in the Net Capital at end.

That is why it is subtracted here. Private Consumption comes from the Private Account

Net Capital at end: This is the end result of the Profit and Loss Account Calculations

Improving the Quality of the AccountsReliability: When you at making up the accounts, you should do it as precisely as it ispractically possible. When you know precisely how the result was in each period, you havebetter possibilities of correcting errors and make changes in composition of the production.

Correct Stocks: If you buy seed in autumn for next year's harvest, this year's result willshow a too bad result, and next year's result will show a too good result. Such a cost oughtto be corrected by entering it in the balance of end of this year. Equally, harvested grainought to be entered in the accounts of the harvest year, regardless of whether sold, used forfodder, or in stock at end of the year. Only if the harvested grain somehow later is lost, youshould not enter it into the accounts.

Continuous production: In animal production the production is mostly continuous. What isthe value of that part of the year's production, that is not finished yet? The production valueof the half-feedened calf or pig should be shown in the accounts as well as of calves andpigs sold.

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Changes in price level: What if price level changes throughout the year? There will be adifference between balance at beginning and balance at end, not because you have morepigs in the stable, but only because price level went up. In reality, you did not earn themoney, so there is a reason for correction. One way of doing this is to use an average-of-the-year price per pig for calculations both at beginning and at end.

Without correction of pricelevelNumber of pigs at end 100 Number of pigs at

beginning 100

Price per pig at end 300 Price per pig at beginning 200Value of livestock 30000 Value of livestock 20000Change in livestock value +1000

0.With correction of pricelevelNumber of pigs at end 100 Number of pigs at

beginning 100

Year's average price per pig 250 Year's average price perpig

250

Value of livestock 25000

Value of livestock 25000

Change in livestock value 0.In this example, the correct change in livestock value is 0. When price level goes up, thefarmer is not earning as much as the uncorrected calculation shows! The problem in usingthis method is, that you must decide what is the appropriate price, and to decide the degreeof details.

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Chapter 5: The Concept of Gross MarginYou can make the Accounts show, how earnings were in the different productions. Whichbranches were good, and which were not?

The results shown in the accounts are historical. You cannot correct earlier errors and makelast year's result nicer, but you can learn from your errors, so that you are not repeatingthem (without knowing it). For the farmer as a manager, it is important to use the accountsto unveil errors and defects and to get an impression of which results, you can expect later.

The farmer's first task is to make a systematically evaluation of improvement in all kinds ofexisting production. If a result is not satisfying, then how can it be improved? Often, you canimprove the result considerably without larger investments. If for example you find, that thepigs' fodder consumption is too large compared to their growth, you should start solving thisproblem. This is a good reason for making notes on fodder consumption and the animals'pregnancy.

If you want to know the efficiency in the single productions, you must make an analysis,especially of costs. The costs are divided into two main groups

Variable Costs: Costs, that are directly connected with the size of production andwill disappear, if you stop the production. Foodstuff and fertilizers are typicalexamples of variable costs.

Fixed Costs: Other costs are partly variable or fixed costs, and will only to a certaindegree depend on production and management

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By distribution the Variable Costs, you can calculate how much every kind of productionyielded to cover the common, fixed costs. This yield is called Gross Margin.

In its simplest form a gross margin is a measure of gross output less variable costs andcould be made up of two figures, i.e.:

1 hectare ofpotatoesOutput 800000- Variable Costs -300000= Gross Margin 500000

A gross margin derived from such figures is rather limited for planning and budgeting. Youcan add details like in this example:

1 hectare ofpotatoesOutput: Sales 33 t/ha 800000Variable Costs:seed -108000fertilizer -77000pesticides -30000contract labour -55000other costs -30000Total variable costs -300000= Gross Margin 500000.With the Gross Margin calculation, you would like to know:

Is the level of fertilizer correct? Is the price of seed per tonne too low? Why is this farmer's cost for fungicides higher than other farmers?

- then you must divide the income and costs in a more thorough way and show physicalunits:

1 hectare of potatoesOutput 16 t/ha for processing, 36000 Rb/t 57500010 t/ha for stock feed, 5000 Rb/t 500003 t/ha for wages, 25000 Rb/t 750004 t/ha reserved for seed, 25000Rb/t

100000

Total Output 800000Variable Costs:seed 2,8 tonnes/ha -108000Fertilizer5 tonnes manure -7000200 kg N -22000

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250 kg P205 -30000250 kg K20 -18000Pesticidesherbicide 2,5 I/ha -80003 x fungicide 3 I/ha -18000desiccant 4 I/ha -4000Contract labour, 100 hours -55000Other costsbags -20000l levy -10000Total variable costs -300000= Gross Margin 500000.The example is based on Mogens Abildgaard: Accounting for Individual Farms, TA-CISproject, Agroconsult, Moscow, 1995, Page 37-39.

Variable costs

Fixed costs

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Chapter Six: Production and Financial PlanningWhat will happen in future? You do not know which changes in production will be the mostprofitable, if you do not make calculations. If is important to make realistically economiccalculations before you decide investments. It can be a difficult task to make the calculation,but still it will give a good idea of the economic conditions.

Profitability: If you need to borrow money, the bank will ask to see a financial andproduction plan. The bank wants to see, whether the investment will be profitable. Theincrease in income must be larger than the increase in costs.

Liquidity: Will you have cash enough to pay the credit back? You must be able to providemoney to pay interest and instalment of the credit meant for investment.When your conditions change, there may be need for a production and financial plan. Thelimiting conditions may be:

Changes in production efficiency Enlarging or changing the production Lack of cash Lower prices Changes in market situation

To make it possible for you to judge, both when you want to know Whether you will make profit on the existing production under changed conditions or You will make profit on a changed production

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You will not run out of cash in the coming period

When showing alternatives in a plan, it is most convenient to show only one change at atime, for example not in two columns:(Text)

Existingproduction

Higher production and higherprices

.It will be better with three columns:(Text)

Existingproduction

Higherproduction

Higher production and higherprices

.It is most common to make a plan for one year. On the other hand, it cannot tell you howincome and costs will be distributed throughout the year. Maybe there is a need for dividingthe year in quarters or months.The production and financial plan can show

Profitability: The expected economical result for the coming period Liquidity: The cash flow in the period.

You can show the expected result based on the expected Gross Margins of the singleproductions: Gross Margins - Fixed Costs = SurplusSurplus Plan Plan year

2Account year l

Gross Margin Perunit

Total Total

27.5 ha rain and rape 2900 79750 8473729 cows 4000 116000 1043578 calves for slaughter 500 4000 328429 sows 1000 29000 12425130 pigs forslaughter

50 6500 5254

Other 1750 1383Total Gross Margin 237000 211440Fixed Costs -110000 -98676Surp lus 127000 112764.

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In this example, the farmer and his consultant expect a considerable improvement of theGross Margin per sow. Nearly all of the improvement in the Total Gross Margin is originatingfrom this improvement.

Using the plan, you can calculate how long the farmer's money will last. When you use yourincome to invest in new machines, buildings, larger livestock, etc., you may run out ofmoney even if you are improving your surplus.

The expected cash incomes in year 2 will be 155000 kroner, which is more than theexpected surplus of 127000 kroner. That is because parts of the fixed costs shown are notin cash.

Depreciation is not a cash cost like costs for fertilizer, seed, etc. Costs for buying machinesand buildings are not deducted directly in the accounts in the year of the purchase. They arenot used up at end of the year of purchase, and the cosa of using these goods are insteaddistributed over the expected years of use. Every year the machines and buildings are worn,and they loose value.

The expected cash incomes is the amount, that is at disposal to pay interest andinstalment, land rent, investments, and private costs like consumption and incometaxes.

One-year Liquidity Plan Plan year 2 Account year lSurplus 127000 112764+ depreciation correction 20000 20476+ incomes not from agriculture 8000 15688Total Cash Income 155000 148928Costs:Interest and land rent aid -67000 -65487Instalment on credits -22000 -20801Private consumption and taxes -60000 -58200Gross investment in buildings andlivestock

-50000 -28568

Interest and instalment on new credit -8627 0Total Costs: -207627 -173056

Total Cash Need: -52627 -24128New credit for sow stable 45000 12000Difference -7627 -12128.As you see, neither in year 1 nor year 2 the new credit was sufficient for covering allof the farmer's need for cash. The One-year Liquidity Plan shows, that all of theplanned investment in the sow stable must be financed by credits. 45000 kroner arecovered by a new credit, and the farmer will hopefully find rest of the money on hisbank account.

Short-term Liquidity Plan: Newly established farmers and farmers, that make largerchanges in their production, may use a Liquidity Plan for shorter periods than oneyear. As a basis you use cash results from corresponding periods one year earlier.

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Chapter 7: The Russian Tax Account

Russian Taxation RulesEvery farmer must report for the tax authority his quarterly sales and income for purchasetax and income tax purposes. The principles are rather simple, nearly only covering cashsales and cash costs.

Russian farmers pay two or three kinds of taxes: 3% Sales Tax on total sales, since January 1994. There is no refund, if the farmer

has more cost than sales in one quarter. The Russian name is "Special tax." 20% Value Added Tax on sales minus purchases. If the farmer had more cost than

sales in one quarter, he will have the paid Value Added Tax refunded from the state.The English abbreviation: VAT, Russian abbreviation: NDS. VAT on purchasedmachines is legally deducted, and VAT on sold machines is compulsory. There existspecial favourable terms of refunding 50% of farm building costs.

35% Income Tax on Taxable Farm Profit. Farmers are excepted from this tax in thefirst five years after their establishment, or

70% Income Tax on Taxable Business Profit. There is no five-year exception fromthis tax on non-agricultural activity.

The Taxable Farm Profit is defined in the following way. - Allowance for paid Sales Tax and Value Added Tax No taxation of change in stock or livestock Allowance for depreciation of assets according to special rules, with inflation taken

into consideration

The farmer is obliged to inform the tax authorities of his sales and income quarterly on acertain one-page form at the latest 19 days after the end of the quarter. The matching tax

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should be paid at the same time. As mentioned above, the principles of the tax accounts arerather simple.

The period is short, only three months There is no interdependence between periods The basis for taxation includes cash sales, cash costs, and assets allowance by end

According to these principles, it is rather easy to show the taxable income and to calculatethe different taxes in the farmer's tax account. Entrepreneurs in other sectors thanagriculture pay 70 per cent income tax on business profit. It is quite common, that farmersmake other business beside their agricultural business. The income taxation rule of othersectors is put into force, when a farmer has more than 30% of non-agricultural sales.

Wage earners pay approximately 12% income tax. This tax is to be withheld by theemployer. Besides the wage cost, the employer has other costs of hired staff such ascontribution to pension funds. Tax of wage earners' interest income is withheld by the bank.Tax of entrepreneurs' interest income is not withheld. Instead, the farmer must show thisincome in his tax form.

Principles for the Tax AccountsWhich figures should be shown in the Tax Account? That is a question of which informationis needed to fill the Tax Form, and what is expected by the tax authorities.

The bookkeeping practice should follow the demands of the tax authorities. The vouchersneed to be controlled by Consultancy Centre staff, cash balance controlled, etc. It isimportant, that the tax authorities believe in the Consultancy Centre's work, so it must beproperly done.

When should an income or a cost be entered the books? When the buyer and seller agreeon the amount. If the amount is paid, then at the month of payment.

A Proposal for Plan of Accounts

TaxForm

Account

Text Cash

Non-Cash

Sum

20 Sales 1 (crops) Х21 Sales 2 Х22 Sales 3 Х23 Sales 4 Х24 Sales 5 Х25 Sales 6 (milk) Х26 Sales 7 (animals) Х27 Sales 8 Х28 Sales 9 Х29 Sales 10 Х

1 Total Sales, Taxes Excluded Х1A non-processed agricultural sales Х1B 30 Processed agricultural sales Х1C 31 Work and service for other firm Х

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32 Income form realisation Х33 Interest from bank Х34 Yields from value papers Х35 Other income 1 Х36 Other income 2 Х

2 Interest, yields, realization income,etc.

Х

3 Total taxable incomes, row 1+2 Х3A 37 Non-agricultural part Х4A 38 Credits obtained Х

39 Dotations from budget funds Х40 Assurance received Х41 Other donors, non-budget funds Х

4 Credits obtained, dotations, etc. Х5 42 Depreciation by end of use Х

43 Repair 1 Х44 Repair 2 Х

6 Cost of repair Х45 Production costs 1 (crops) Х46 Production costs 2 Х47 Production costs 3 Х48 Production costs 4 Х49 Production costs 5 Х50 Production costs 6 Х

51 Production costs 7 Х52 Production costs 8 Х53 Production costs 9 Х54 Production costs 10 Х55 Production costs 11 (animals) Х56 Production costs 12 Х57 Production costs 13 Х58 Production costs 14 Х59 Production costs 15 Х

7 Costs for production work and service Х8 60 Salaries Х9 61 Payments to farm members Х10 62 Social and medical insurance Х11 63 Depreciation Х12 64 Leasing paid Х13 65 Obligatory insurance payment Х

66 Interest 1 Х67 Interest 2 Х68P Reserved69P Reserved

14 Interest paid Х70 Sales commision paid Х71 Specialists paid Х72 Telephone etc. Х73 Bank costs Х74 Other expenses Х

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75P Reserved76P Reserved

15 Other expenses Х16 Total deductible costs Х16А Costs for agricultural sales Х16В 77 Costs for processed agr. sales Х16С 78 Costs for work and service for other

firmsХ

16D 79 Costs for non-agricultural sales Х17 Investments and repayments Х

80 Buildings Х81 Machines 1 Х82 Machines 2 Х83Р Reserved84Р Reserved85Р Reserved86Р Reserved87Р Reserved

17А Buildings and machines Х17В 88 Production livestock, etc. Х17С 89 Repayments Х18 Taxable profit (row 3 minus row 16) Х18А Non-processed agricultural sales Х18В Processed agricultural sales Х18С Work and service for other firms Х18D Income from non-agricultural activity Х19 Turnover (row 3 + row 4 - row 16 - row 17) Х19A 90 Profit of the farm members Х

91 Cash by beginning Х92 Cash by end (negative) Х93 Bank by beginning Х94 Bank by end (negative) Х95 From private means Х96 To private consumption Х97 Paid VAT and special tax Х98Р Reserved99 Regulation of non-cash figures Х(110)

Calculated VAT (to Cash Balance control) *

(111)

Calculated Special tax (to Cash Balancecontrol)

*

(112)

Cash Balance control (should be zero) Х

(113)

Non-cash Balance control (should be zero) Х

(114)

Calculated agricultural income tax *

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NotesThis material is adapted from the booklet "Regnskabsføring i landbrugsvirksomheder",published by Danish Radio 1975. It is intended to instructing in farmers' accounts in Russia.The purpose is to give inspiration and understanding of Danish farmers' accounts - it is nota final precept for Russian accounts. Chapter seven on the Russian Tax Account is entirelya proposal at my own expense.

Illustrations by J. Skjødsholm , translation to Russian by Natacha Grigoriyeva.

Smolensk, June 1995Ebbe Munk

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