Financial Record Keeping

Why Keep Records?

• Tax Preparation• Management Decisions

– Production, financial, investments

• Crisis– Death, fire, flood, theft, accident

• Proof of Ownership or Payment– Lawsuits, audits, etc.

• Backup of Original Documents

Records In a Nutshell

• Must be organized & usable– Find a system that works for you

• Need to know:– What you own (assets)– What you owe (liabilities)– What you earn (income)– What you spend (expenses)

Records to Keep

• Financial Records– Cash

• Inflows (receipts or sales)

• Outflows (expenses)

– Payables (cash you owe)

– Receivables (cash owed to you)

– Assets (things you own)• Cash, equipment, livestock, land, facilities, etc.

– Liabilities (loans)• Operating loan, credit card, equipment loans, mortgages

Records to Keep

• Production Records– Crop

• Acres, seed population/variety, fertilization, pesticides used, irrigation, yields, etc.

– Livestock• Premises ID, breeding records, feed ration, medications,

yields, etc.

– Inventories • Supplies, feed on hand, etc.

– Environmental, chemical use• CYA principle!!

Other Records to Keep• Personal Records

– Wills, power of attorney, living will, health records

• Household Inventory• Ownership Records

– Deeds, titles, contracts, warranties

• Official Documents– Licenses, contracts

• Financial Records– Bank statements, credit cards, loans, investments, balance sheet, budgets

• Insurance Records

• Tax Records (for 3-7 years)

How to Keep Records

• “Shoebox” (very common)– Keep all records, receipts, etc. in a box

• Record Books & Files

• Computer– Quicken, QuickBooks, Peach Tree, Red Wing

• Accountant

• Record keeping services

Accounting Methods

• Cash– Most common for ag & small business– Simple, easy– Record receipts & expenses when the cash changes

hands– We’ll assume cash accounting for this course

• Accrual– More complex, time-consuming– More accurate, preferred by lenders– Record receipts & expenses when the transaction

occurs, regardless of whether cash changes hands

Cash vs. Accrual

• December 1 - You buy $15,000 of fertilizer “on account”

• January 10 – You write a check for $15,000• Cash Accounting

– January 10 – Fertilizer Expense - $15,000• Gets included on next year’s taxes

• Accrual Accounting– Dec. 1 – Fertilizer Expense Payable - $15,000

• Gets included on last year’s taxes

Records and Computers

• Financial Packages– Quicken, Money, Managing Your Money, etc.– Cheap, quick and easy way to organize– Don’t need accounting skills to use

• Accounting Packages– Quickbooks, Peach Tree, DAX, etc.– Detailed statements– Need to know the basics of accounting