Farming, at its very core, is a business venture. That being said, proper farm accounting and record keeping will go along way to decrease your stress and potentially save you big during tax time. Here is what you need to do to get your farm accounting in order:
Step 1. Get Your Feet Wet in Farm Accounting
Basic Accounting: Guidance for Beginning Farmers walks you through the basic concepts of accounting principles. It is the perfect primer to get you understanding what income and expenses you should be recording for your business.
Step 2. Choose Your Accounting Software
Choosing the right accounting software for your business can be challenging to know what you need. This article details the pros and cons of each accounting software, which will help you decide. Most importantly, write down a list of things you will need to keep track of: employees, liabilities, invoicing, cash sales etc. this will help you pick the most appropriate software.
Step 3. Establish Your Chart of Accounts
Once you have chosen your software it is critical to establish your chart of accounts. A chart of accounts is a financial organizational tool providing a complete list of your accounts in the system. An account is a unique system of recording each type of liability, asset, equity, revenue and expense. This example of a farming chart of accounts for Quickbooks is the perfect way to get started creating your chart of accounts.
Step 4. Establish a System to Keep Your Papers in Line
What is the easiest way for you to keep track of your paperwork? There are a variety of systems for organizing your accounting paperwork. Some people prefer organizing in a paper system and storing the paperwork in a fireproof safe. Other people are moving towards a paperless accounting system which prevents any loss of data as long as the online system is duplicated (stored in multiple places) to prevent data loss. Remember that the IRS requires that proof of your income/expenses must be kept for a certain number of years. Look at the complete ruling of how long you need to keep what records.
Step 5. Establish a Schedule to reconcile your accounts
Do you remember what you ate last week? What about last summer on July 15? No? Reconciling your books should be a daily or weekly task. You should daily be looking at both your bank account and you accounting software to make sure you know where you are at in both accounts.