1. Spencer Ag Business Curriculum 2012
Record Keeping
Spencer Ag Business Curriculum
2012

2. Student Objectives Purpose of keeping records Financial statements
Steps needed to set up a records system
Types of records
Accounting systems and terms
Depreciation
Other terms and key points

3. Why Keep Records? Required for income tax reporting
Needed to obtain credit
Assist in planning and managing

4. Record Keeping Terminology
Accounts payable: money you owe
Accounts receivable: money owed to you
Taxes: money owed to gov’t for income
Freight and trucking: money paid for transporting commodities
Capital assets: breeding livestock and machinery

5. Record Keeping Terminology
Capital purchases: money owed for breeding livestock and machinery
Capital sales: money received for sales of breeding livestock and machinery
Market cost: used to value purchased feed and seed
Patronage dividends: money received from a cooperative

6. Types of Financial Statements
Net Worth Statement: records assets and liabilities
Shows financial condition of the business
Lists all assets & values, liabilities & values
A.k.a. balance sheet
Cash Flow Statement: monthly cash inflows and outflows

7. Types of Financial Statements
Income Statement: shows profit for a given time (1 year)
A.k.a. Profit/Loss Statement
Detailed Enterprise Analysis: profitability efficiency of an individual enterprise
Budgets: Financial plans
Partial: Compares/contrasts two options
Enterprise: Plans for one part of a business
Whole Farm

8. Steps Taken to Set Up a Record Keeping System
Select a record keeping system
Select an accounting system
Select a method of reporting income and expenses
Develop a procedure to get exactly the information needed from the records

9. What Records? Financial (Money) Physical Receipts & expenses Net worth
Income statement
Cash flow
Physical
Production records of crops & livestock
Crop yield
Birth weight, weaning weight

10. Types of Accounting Systems
Double Entry
Credit transaction balanced by a debit transaction
Single Entry
No balance maintained

11. Income and Expense Records
Cash Method: record actual cash transaction
No inventory kept
Expenses not deducted until cash is paid
Income may be erratic

12. Income and Expense Records
Accrual Method: Income and expenses recorded when they actually occur
Uses inventory to match income & expense with appropriate time period
Detailed and complex
Easier to analyze strengths and weaknesses of a business
Work with abstract figures (may only show profit on paper)

13. Income and Expense Records
What are cash receipts?
Cash flowing into a business
Examples
Cash sales, government payments, dividends, insurance payments, capital sales, rental income, etc.
What are cash expenditures?
Cash flowing out of a business
Hired labor, taxes, repairs & maintenance, supplies & inputs, interest, capital purchases, utilities, etc.

14. Income and Expense Records
Entering Negative Balances
$1,100
($1,100)
-$1,100

15. Inventories Inventory: List of all assets and values
Why keep an inventory?
Get a true picture of financial position
Must use with accrual method
Places values on assets

16. Inventories What should be inventoried?
In short…EVERYTHING: Crops in storage, market livestock, supplies, breeding livestock, machinery, equipment, buildings, land, accounts receivable, accounts payable, liabilities

17. Inventories What guidelines should be followed?
Measure quantity in common units (bushels, cwt., tons, pounds)
Group like items (cows, bulls, replacement heifers, calves)

18. Inventories How are inventories valued?
Cost minus depreciation (equipment)
Cost minus depletion (example: gravel pit)
Market cost (inputs)
Net market price (products sold)

19. (Purchase Value – Salvage Value)/Useful Life
Depreciation
What is depreciation?
Loss of value due to age and use
Two types—Straight Line & Accelerated
How is depreciation calculated?
(Purchase Value – Salvage Value)/Useful Life
Current Value =
Purchase Value - Depreciation

20. Depreciation: Practice
Problem 1: Combine
Purchase Value: $200,000
Salvage Value: $20,000
Useful Life: 18 years
Current Age: 10 years
What is the current value of the Combine?
(200,000-20,000)/18 = 10,000 *10=
$100,000
$200,000-$100,000=$100,000

21. Depreciation: Practice
Problem 2: Tractor
Purchase Value: $120,000
Salvage Value: $10,000
Useful Life: 16 years
Current Age: 8 years
What is the current value of the Tractor?

22. Depreciation: Practice
Problem 3: Truck
Purchase Value: $40,000
Salvage Value: $2,500
Useful Life: 15 years
Current Age: 5 years
What is the current value of the Truck?

23. Review Describe the major financial statements in record keeping.
List and describe the two accounting systems.
What are the two methods used to enter income and expense records?
How can negative records be recorded?
Why keep records?
How is depreciation calculated?