Farm Management Software Blog

Over the past three articles we've contrasted the ways farmers produce financial statements and the conflicting goals of maintaining simultaneous cash and accrual records.
      

Over the past two articles we've contrasted the ways farmers produce financial statements and the conflicting goals of maintaining simultaneous farm financial records by cash and accrual.

The conflict is created by these realities:

    •      Because the IRS allows it, most farmers file cash-basis tax returns.
    •      As a result, the cash-basis 1040 Schedule F intentionally distorts true farm earnings.
    •      Few farmers have the training or incentive to prepare accrual financial statements.

Therefore an "adjusted accrual" system (Coordinated Financial Statements) was developed by Tom Frey and Danny Klinefelter at the University of Illinois in the late 70s.  Further refined and re-dubbed "Agricultural Financial Reporting and Analysis" (AFRA), this methodology is the heart of the process adopted by the Farm Financial Standards Council.

We began a series on farm financial reporting in agriculture by looking at three general ways farmers produce financial statements (cash-basis accounting / "black box" analysis, cash-basis accounting/"user-supplied" data and accrual/managerial accounting). Before moving into more depth with the agricultural financial reporting process, let's examine all the reporting requirements that operations sooner or later encounter. In fact, we've identified eight coexisting, and often conflicting information goals in farm records:

We ran across this AgTalk post by Mark Wilsdorf, who markets an add-on to Quickbooks for farmers.  If anyone has figured out how to make this ubiquitous small business accounting program function as an effective farm financial management tool it would be Mark.

Attendees at the 2011 Ag Bankers Conference experienced a warping of the time-space continuum as 93 percent reported that their farm customers were managing their farms like it was 1981, not 2011.  Unbelievably, only seven out of 100 lenders had clients using accrual accounting.

’Tis the season to toil over financial statements.  Many of you depend on programs like Finpack and AFRA (Agricultural Financial Reporting and Analysis) to convert your cash-basis accounting records to “adjusted accrual” financial statements.  Based on the Coordinated Financial Statement forms developed at the University of Illinois in the late 70s, AFRA will be celebrating its 30^th birthday in 2014.

In our last post we reflected on 1) what type of farm operations could profit from management accounting (M.A.), 2) who should not consider M.A., and 3) prerequisites for success in implementing M.A. We continue the discussion today by identifying 4) expected and unexpected benefits clients are achieving from M.A. 

A few years ago the Farm Financial Standards Council--which promotes the introduction and standardization of management accounting (M.A.) within agriculture--asked software company providing M.A. to respond to these questions: