Farming is a complex business which demands accurate records and careful financial management.

An accounting system is a set of actions and methods designed to collect, store, and process financial transactions into management reports for decision-making.

The balance sheet is a report of the farm business’ financial position at a moment in time. It lists assets, liabilities, and net worth (owner’s equity), and represents a snapshot of the farm business as of a certain date.

The income statement is a report of the farm business’ financial performance during a given time frame. It measures profit or loss in a given time period.

The statement of cash flows tracks the sources and uses of cash in the farm business in the past year. It also adds insight to the understanding of financial position and performance of the farm business.

The statement of owner equity reconciles the change in equity from the beginning balance sheet to the ending balance sheet for the farm business. Also known as the statement of net worth, shows the source of change.

Having financial statements (balance sheets and income statements) is a first step towards financial management decision-making.  However, it is the next step that makes a difference in future profitability and that is analyzing the financial story being told by the financial statements and making decisions on where to spend management time to improve future profitability. 

Whether on the tractor, in the barn, or at the farm office, farm managers are always mulling over some change to their operation that might improve profitability. It might be employing a new technology, launching a new enterprise, buying or leasing machinery, altering a production practice, or some other possible change.  Occasionally, one of those ideas […]