Farm Record And Farm Account

FARM ACCOUNT

Farm Accounts are statements of money paid out or received for goods and services used in a farming business.

FARM RECORD

Farm Records are written documents showing major activities going on in the farming business

IMPORTANCE OF FARM ACCOUNTS/RECORDS

1. It enables the farmer to monitor the changes in the prices of products brought or sold.
2. It shows the financial position of the farm.
3. It helps to determine profit.
4. Detecting fraudulent decisions.
5. For taking informed management decisions.
6. For the procurement of loans.
7. For the determination of the annual tax.
8. Determining the actual worth of the farm.
9. For comparing management efficiency.
10. To evaluate the performance of an enterprise.
11. To estimate future farm returns.
12. It provides the basis for conducting research.
13. To monitor the health status of crops and animals.

EVALUATION

1. What is a farm record and account?
2. List five important of keeping farm records and accounts.

TYPES OF FARM RECORDS

1. Farm Diary: This is the record of daily activities.
2. Farm Inventory: This is the list of all assets on the farm and their monetary worth or value.
3. Sales and purchase record: a record of revenue and expenses made by the farm business.
4. Yield or production record: it contains information on the output of crops and animal products.
5. Payroll or labour record: It shows the amount and types of labour hired or employed to work on the farm and the rate at which their wages are paid
6. Farm Input Utilisation Record: It shows the input required, utilised and their level of input application.

TYPES OF FARM ACCOUNTS

1. Sales Account: Sales Account is also known as the sales and receipts account. This shows data of farm produce, the quantity, date sold, to whom and at what price.
2. Purchase Account: It is also known as purchased for use on the farm.
3. Farm Valuation: This is the value of the farm at the beginning and end of production. At the beginning, it is called opening valuation, while at the end, it is called closing valuation.
4. Cash Analysis Account: It shows the details of the income and expenditure of a farm over a given period of time.
5. Farm Income Statement: It comprises all the farm receipts (sales) and expenses incurred on the farm over a period of time, as shown below.

INCOME STATEMENT OF AKANDE FARMS FOR OCTOBER 1995

EXPENSES	₦	RECEIPT	₦
Feeds	2000	Egg	5000
Drugs	400	Culled layer	3000
Water	100	Manure	200
Labour	500
Fuel	200
Net Income	5000
Total	8,200		8,200

6. Balance Sheet or Networth Statement: The balance sheet shows the capital or financial position of the farm at the end of the accounting period, usually a year.
7. Profit and Loss account: This is the type of account prepared at the end of the business period, usually a year. A farmer needs to know whether his business is making a profit or a loss.

In this account, all expenses and purchases are listed on the left-hand side, i.e. debit side and all receipts from sales are recorded on the right-hand hand, i.e. credit side. Closing valuation is also put on the right, while opening valuation is put on the left.

IMPORTANCE OF PROFIT AND LOSS ACCOUNT

1. It helps to detect if the farm is makinga profit or a loss
2. It helps to determine the overall performance of the farm at the end of the accounting period
3. It aids future planning of the farm for better results.

Example

Prepare a profit and loss account for Segun Farms for the year which ended 31/12/17, using the following data.

1. Cost of feed N500
2. Cost of drugs N200
3. Sales of Eggs             N 2000
4. Eggs for domestic use             N 200
5. Loss due to mortality             N 300
6. Value of stick left N 600
7. Farm wages N 400
8. Sales of spent layers             N 1000
9. Transportation cost N 300
10. Depreciation             N 200
11. Electricity bill             N 300
12. Net profit N 1600

SOLUTION

SEGUN FARMS PROFIT AND LOSS ACCOUNT AS AT 31^ST DECEMBER, 2017

DEBIT			CREDIT
S/N	ITEMS	₦	S/N	ITEMS	₦
1	Cost of feed	500	1	Sales of spent layers	2000
2	Cost of drugs	200	2	Eggs for domestic use	200
3	Loss due to mortality	300	3	Value of stick left	600
4	Farm wages	400	4	Sales of spent layers	1000
5	Transportation cost	300
6	Depreciation	200
7	Electricity bill	300
8	Net profit	1600
	Grand Total	3800		Grand Total	3800

EVALUATION

1. a. List five types of farm records
2. Explain any two of the records mentioned.

1. a. List five types of farm accounts.
2. Explain the profit and loss account.

DEFINITION OF SOME ACCOUNTING TERMS

1. Farm Asset: This is anything of value in the possession of a farm business. There are two types.
2. Fixed Assets: These are assets which are not used up during production. Examples are: landed property, farm building, motor vehicles, tools and implements, incubator and milking machine.
3. Current Assets: These are assets which are used up during the process of production, eg water, feed, drugs, chemicals, fertilisers, seeds and cash in the bank.
4. Cost: These are expenses made during production. There are two types: fixed and variable.
5. Fixed Cost: This is the component of the total of production cost which does not vary with the level of production e.g. cost of buildings, equipment, machineries, farm structures (Silo, barn etc.)
6. Variable Cost: This is the other component of the total cost, which varies directly with the level of production, e.g. wages, salaries, cost of seeds, cost of fertiliser, cost of agrochemicals, etc.
7. Liabilities: This is the money owed to external persons or corporate bodies, e.g. loans to banks. The two types are.
8. Current or short-term liabilities: These are debts that must be paid back within one accounting year.
9. Long-term liabilities: These are debts that cannot be paid within an accounting year
10. Net Capital, Net worth or owner equity: This is the total amount of money supplied by the owner of the farm business.

Asset – Liability = Owner’s Equity or Capital

5. Liquidity is the ability of a farm business to meet its financial obligations as they fall due. It is the ease with which farm assets can be converted to cash.
6. Solvency: This is the ability of the farm business to cover its liquidation of assets. A business is solvent if the sale of its assets would be sufficient to pay off all debts.
7. Appreciation: This is the increase in the value or worth of an asset as the asset is being used over time. Examples of assets that can appreciate are growing animals, cash crops, land, etc.
8. Depreciation: Depreciation refers to the loss or reduction in the value or worth of an asset as the asset is being used over time
9. Salvage Value: This is the amount at which an asset is sold off when it is no longer economical to keep, or when the cost of maintenance is too high.
10. Useful life Span: This means the number of years a piece of farm equipment can effectively serve the farmer.

EVALUATION

1. Define the following: (i) Appreciation, (ii) Solvency, (iii) Liquidity
2. Distinguish between fixed assets and variable assets.

Calculations of Depreciation and Salvage Value

The formula for calculating depreciation is as follows,

1. Total depreciation = cost price of asset – salvage value of asset
2. Annual depreciation =

Example: A plough was purchased in 1985 at the cost of N 6000 and sold off in 1990 at the cost of N 1000

Calculate

1. The salvage value.
2. Total depreciation.
3. Annual depreciation.
4. Appreciation

Solution

• Cost price of the plough = N 6000
• Salvage value = N 1000
• Lifespan of useful life (1990 – 1985) = 5 years

1. Salvage value = N 100,0 i.e the price at which it was sold off
2. Total Depreciation

= Cost price – salvage value

= N 6000 – N 1000

= N5000

• Annual Depreciation

=N1000 (annual depreciation)

1. There is no appreciation.

GENERAL EVALUATION

1. What are farm records and accounts?
2. List five important of keeping farm records and accounts.
3. List five types of farm accounts.
4. Distinguish between fixed and variable costs.

ASSIGNMENT

1. In the profit and loss account, opening valuation is put on the _____ A. credit side B. debit side C. and side D. all sides.
2. Ability of a farm to meet its financial commitment as the falls due is _____ A. solvency B. liquidity C. depreciation D. appreciation.
3. The amount at which an asset is sold off when the cost of maintaining it is high is called ____ A. useful life B. lifespan C. salvage value D. asset.
4. Day-to-day activities on the farm are recorded in _____ A. register, B. diary, C. payroll, D. inventory.
5. Farm assets are recorded in _____ A. diary, B. register,r C. inventory labour

THEORY

1. a. What is the profit and loss account?
2. List five types of farm records.

1. a. What is a farm asset?
2. Distinguish between credit and subsidy.

See also:

BASIC ECONOMIC PRINCIPLES

CROP IMPROVEMENT

WEEDS FOUND IN FARMS

INSECT PESTS | ECONOMIC IMPORTANCE, PREVENTION & CONTROL

CLASSIFICATION OF INSECT PESTS