AGRICULTURAL ECONOMICS IV ( FARM ACCOUNTS )

Introduction

  • Financial and physical records if accurately kept in the farm serve as very important tools in decision-making
  • The records are kept in several books and statements as follows:

Financial Documents

They include:

  • Invoices.
  • Receipts.
  • Delivery notes
  • Purchase records.

An Invoice

  • This is a document issued by the seller to the buyer for goods taken on credit, and payment to be done later.
  • The original is given to the buyer and duplicate retained by seller.

The invoice shows the following:

  • The buyer and seller.
  • Date of transaction.
  • Amount involved.
  • Invoice number.

A Receipt

  • This is a document issued by the seller to the buyer when cash payment for goods delivered is made.

It shows the following:

  • The buyer and the seller.
  • Date of transaction.
  • Amount involved.
  • Serial number

Delivery Note

  • It is a document which shows that the goods have been delivered.
  • The receiver verifies the goods and then signs on the delivery note. 

Features:

The delivery note shows the following:

  • Goods delivered as per order.
  • Quality or condition.
  • People involved in the transaction.
  • Date of delivery.

Journal:

  • It is a book of first entry showing a record of all business transactions arranged in the order in which they occur.
  • Its pages are divided vertically into five sectio
  • The information is posted to the ledger

Inventory:

  • This is a list of all the possession/assets item by item and their market value.
  • Such items are land, livestock, tools and equipment and crops in the store.
  • Valuation is an estimation of the value of each asset or item, based on market price or cost of production.

 Local Purchase Order:

  • Issued by the purchasing officer of the supplier for example school.
  • It shows people involved in the transaction, types and amounts of goods ordered and dates.
  • It should be written and signed by the authorised officer.
  • It is written in duplicate and the original is given to the supplier.

Financial Books

Ledger:

  • Is a book which contains individual accounts.
  • It is a principle book of accounts in which entries contained in all the other books are enter
  • It is a storehouse of all the transactions.
  • Each page is numbered and vertically divided into two equal parts namely credit and debit.
  • Each part is further sub-divided into four sections.

Cash Book:

  • It is a book where transactions involving cash or cheque payments are record
  • It involves cash or cheque payments and receipt
  • It is divided into two parts – debit and credit side.
  • All the receipts of cash or cheque are recorded on the debit and all payments are recorded on the credit  side. 

Example: Enter the following entries in the cash book.

  • 1.05 -Received shs.2,000 from Ndete by cheque.
  • 7.05-Bought D.A.P. fertilizer and paid cheque of shs. 5,000.
  • 7.05-Received shs.5,000 cash from Ngala.
  • 4.7.05 -Paid water bill for shs 400 in cas
  • 7.05-Paid telephone bill of 1,500 by cheque.
  • 11.05 -Deposited shs.2,000 in the bank.
  • 20.7.05 -Withdrew shs.2,000 from the bank for home use.

Financial Statements

Cash Account Sheet

  • It involves the recording of sales and receipts, purchases and ex
  • Each sale or purchase is entered twice, once in the total column and once in the analysis column.
  • The sum of all the entries in the total column should always equal the sum of the entries in all the other columns.
  • The cash analysis account sheet is given above.

 The Balance Sheet

  • It is a financial statement of assets and liabilities recorded on a given date.
  • It shows the financial position of a farm business at a glance (snapshot).

Assets are items owned by the farmer,

These include:

  • Property (money, goods and buildings).
  • Debts receivable from other people.
  • Goods and services paid for in advance.

Assets can be divided into two:

  • Fixed assets: assets of permanent nature and not easily converted into cash.
  • Current assets: assets which can be easily converted into cash.
  • Liabilities are claims to the farmer’s property such as bank overdraft and debts payab

They are divided into:

  • Current liabilities – debts which must be paid within a short time.
  • Long term liabilities – debts which are payable over many years or over a long period.

Profit and Loss Account

  • Prepared at the end of a calendar year.
  • It is a final account which summarises the sale and receipts (income flowing in the business) and the purchases and expenses (flowing out of the business).

Note: If assets are more than liabilities then the balancing factor is net capital (in the liability side) hence the farm business is said to be solvent.

  • If the liabilities are more than the assets, then the balancing factor is a loss (in the asset side) hence the farm business is insolvent.
  • To calculate profit or loss, account, valuation is done by having an inventory of all the assets.
  • Valuation of the assets is determined by market price and cost of  production for machinery and buildings as depreciation factor, is attached.

 

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