Transcript of Ag Management Chapter 2 Record Keeping. Objectives Understand the importance of keeping good records...
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- Ag Management Chapter 2 Record Keeping
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- 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
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- Why Keep Records Comply with income tax reporting requirements
Assist in planning and management
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- 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
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- Good Records Allow You To Compare past performance with present
performance and future goals. Good records show you where youve
been, where you are and where you are going.
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- The Records System
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- Steps to Setting Up A Records System 1. Select a 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
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- Financial Records Receipts and expenses Give the net worth
statement, income statement and cash flow summary
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- 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
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- 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
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- 3 Levels of Record Keeping Income Tax Purposes Only Income Tax
plus some business analysis A complete farm or ranch business
analysis
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- Accounting System
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- 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.
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- Procedures
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- 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
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- Record Keeping Procedure Steps See text p. 2-8
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- Inventory
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- 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.
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- Factors that Determine Inventory Date Significance in the
business operation Convenience to the operator
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- 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
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- Guidelines For Making Inventory Counts Measure quantities in
commonly used units Group like items
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- Methods for Putting Dollar Value on Farm Inventories Book value
Current value
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- Book Value Formula Cost - Depreciation=Book Value
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- Current Value Formula Actual cost or market value- Sale
Expense= Current Value
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- 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)
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- Cash Inflows and Cash Outflows
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- 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
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- 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
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- 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!!!
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- Non-Business Income Income received from all sources other than
farming
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- 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
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- Cash Flow Summary
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- 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
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- Other Useful Records Credit Hired Labor Enterprise
Supplemental
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- Why Hired Labor Records are Useful Provide a basis for
determining rewards Help determine the real contribution of labor
to an enterprise
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- Taxes Involved with Hired Labor Records Income and Social
Security (FICA) Unemployment (FUTA)
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- 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
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- Internal Transfers The movement some items from one enterprise
to another. Example: Feeding hay from the hay enterprise to cows in
the cattle enterprise
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- Supplemental Records Supply additional information which helps
provide a more complete record system
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- 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
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- Assignment Complete Chapter 2 Assignment Sheet 1 & 2 p. 21-
24 DUE-