www.ebbemunk.dkBookkeeping and Farm Economics

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Bookkeeping and Farm Economics

Chapter 1: Daily Recording

Chapter 2: The Consultancy Centre's basic accountancy work

Chapter 3: Making out the Balance Sheet

Chapter 4: The Managerial Accounts

Chapter 5: The Concept of Gross Margin

Chapter 6: Production and Financial Planning

Chapter 7: The Russian Tax Account

Chapter 1: Daily recording

The daily recording is entering all amounts as you receive or pay them. It is a receipt, when you put money into the purse or deposit money on your bank account, and it is an expenditure, when you use the money.

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The Cash Book

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

• Public authorities' demands for bookkeeping and accounts: Documentation to be used as a basis for taxation. The authorities can require some certain ways of how bookkeeping should be made.
• Farmer's own demands for bookkeeping and accounts. Every independent farmer needs to have a general view of the economic state of his business. It is the basis for decisions on the future management of the farm.

The bookkeeping is the basis for all kinds of accounts. Not to hide the incomes, Danish bookkeeping 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 Danish rules.

How to record in the Cash Book

The 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 with enclosed vouchers to the farmers' consultancy centre (see Chapter Two).

You begin recording at a new page by entering name, address, month and year. Bring forward the last month's cash balance (1281.98 kroner) and last month's bank balance (debt 41,632.33 kroner).

Items

An item is consisting of the following pieces of information:

1. Date for payment of the amount. Note, that you should not mistake it for the date of invoice.
2. Text describing the item, so that others, that continue the bookkeeping work know how to treat it. From whom did you receive the money, and why? If the voucher contains of more than one sort of receipt or expenditure, you should use a new line for each sort.
3. Number of voucher is a very useful information, which helps the bookkeeping work later.
4. Quantity is information of number of animals purchased or sold, or kilograms of grain sold. In the example it is one sow sold.
5. The amount received or paid

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

Amounts

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

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

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

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 only one amount, and letting the consultancy centre split the amount later. This makes the control of the bank account easier.

Current Account

Externally: When payment is not following delivery of goods, it may be an advantage to use the 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 vice versa, you must show the amount in two places. You can see this in the example at the 9th day: 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 amount in 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.

Private Consumption

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

Cash Balancing

Cash Balancing is an important part of all bookkeeping. By balancing cash, you ensure, that all items are correctly entered the cash book. This is the principle:

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

Bank Account Balancing

Balancing the bank account is in principle as cash balancing. In this example, the farmer has a cheque account with overdraft (negative balance) and for this reason some of the calculations are altered.

You start with your debt to the bank, add all expenditures of the period, and subtract all receipts of the period:

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

Value Added Tax and Turnover Tax

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

Summary

Here 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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