RECORD

KEEPING
CHAPTER 1
AGR323
CHAPTER OUTLINE
01
PURPOSE OF 02
RECORD
KEEPING
ESTATE
BUSINESS 03
ACTIVITIES BASIC
ACCOUNTING
TERMS
01
PURPOSE OF
RECORD KEEPING
Record Keeping
 Record-keeping refers to keeping, filing,
categorizing and maintaining farm financial
and production information.

 Can be accomplished through a variety of

methods, from a basic hand record-keeping
method to an elaborate computerized system.
MANUAL VS DIGITAL

MANUAL RECORD DIGITAL RECORD

KEEPING KEEPING
• Low initial out-of-pocket • High initial out-of-
expense pocket expense
• Easy to implement • May require
• Time-consuming significant amount of
• More opportunities to make study
mistakes • Fast
• Limited in extent of analysis • Accurate
without extraordinary • Can be a powerful
investment of time and effort analysis tool
PURPOSE OF RECORD KEEPING

Measure profit Provide data for Assist in obtaining

and assess business analysis loan
financial
condition

Measure the Assist in the Prepare income

profitability of analysis of new tax returns
individual investments
enterprise
Measure profit and assess financial
condition
Income Statement
• Shows how the business has performed
for the period of time under
consideration.
• Helps the management by providing
them with an overall view of the
business. Revenue vs Costs, how
profitable the business is and areas that
they should focus
Balance Sheet
• Provides us an overall picture of the
company’s financials. It provides details on
sources of Funds (Asset) and Uses of Funds
(Liability)
• Provides the management with an overall
financial health of the company – amount of
debt taken, total liquidity position of the
company, cash and cash balance etc.
Provide data for business analysis

• Use the information from the balance sheet and income statement to perform an in-
depth analysis.
• Analysis of past decisions is useful for making current and future decisions.
• Example
 Profitability ratios
- Net profit margin = (net income / net sales ) x 100
measures how well a company can covert sales into profit excluding all
expenses
 Debt coverage ratio
Assist in obtaining loans
• Lenders require financial information about the farm business to
assist them in their lending decisions. Many agricultural lenders
are requiring more and better records.
• Good records increase the odds of getting a loan.
Measure the profitability of individual
enterprise
• A farm or ranch showing a profit may include several enterprise.
• It is possible that one or two enterprises are producing all or most profit, and one
or more of the other enterprises are losing money.
• A record system can be designed that will show revenue and expense not only for
the entire business but for each enterprise.
• With this information, the unprofitable enterprises can be eliminated, and resources
can be redirected for use in the more profitable ones.
Assist in the analysis of
new investment

• A decision to commit a large amount of capital to a new investment

can be difficult and may require a large amount of information to do
a proper analysis.
• The records from the past operation of the business can be excellent
source of information to assist in analyzing the potential investment.
Prepare tax income returns

• Internal Revenue Service (IRS) / LHDN regulations require keeping records

for tax purposes.
• Tax records are often inadequate for management purposes.
• Sound record-keeping can also help reduce income tax obligations.
Importance of record keeping
1. Accurate financial and production records will help farmers analyse performance
of farm operation and make necessary adjustment to operate more efficiently thus
increase profitability.
2. Good record keeping is also essential for third party audit and certification.
 A good farm record system should:
a) Provide necessary, accurate and updated information.
b) Be legible, readily, accruable and user friendly.
c) Be flexible enough to provide information in a variety of ways, be
readily understood and audited.
Importance of record keeping
3. Financial records relate primarily to the income and expense transactions of the farm. They may
consist of product sales, operating expenses, equipment purchases, account payable, accounts
receivable, inventories, depreciation records, loan balance, price information etc.
 Production records are items that relate to quantities of inputs and level of production.
Useful production records may include the following categories:
a) Farm and fields maps ( each field, plot or bed numbered, and area shown).
b) Field history sheets (listing crops grown, soil amendment or disease control inputs
used now and before)
c) Input purchase records (including pesticide or fertilizer labels, seed packets and
copies of orders showing product name and supplier)
d) Farm activity log ( planting; fertilizer or pesticide application; soil management
practise or disease problems
e) Sales records ( kind and quantity of products marketed- invoice should contain date,
name of buyer, products, lot number, amount and price sold).
4. Provide necessary, accurate and updated information of the business
02
ESTATE
BUSINESS
ACTIVITIES
ESTATE BUSINESS
ACTIVITIES

Production
activities
Investment
activities
Financing
activities
Production activities
Operating activities include cash activities related to net income. For example, revenue
and expense are operating activities because revenues and expenses are included in net
income.
Operating Activities
Cash inflows:
From sale of goods and services
From returns on loans (interest) and on equity securities (dividend)
Cash outflows: Income Statement
To suppliers for inventory Items
To employees for service
To government for taxes
To lenders for interest
To others for expenses

• Accounting transaction involve activities related to the production of crops. Revenue

from product sales or other estate plantation revenue would be included here.
• Expenses incurred in producing revenue such as feed, fertilizer, chemicals, fuel,
interest and depreciation-are also part of the production activities that need to be
recorded in accounting system.
Investment activities
• Investing activities include cash activities related to noncurrent assets.
• Noncurrent assets/ long term assets include (1) long-term investments; (2) property, plant, and
equipment; and (3) the principal amount of loans made to other entities. For example, cash
generated from the sale of land and cash paid for an investment in another company are included in
this category.
Investing Activities
Cash inflows:
From sale of property, plant, and equipment.
From sale of debt or equity securities of other entities.
Generally Long-
From collection of principal on loans to other entities.
term Asset Items
Cash outflows:
To purchase property, plant, and equipment.
To purchase debt or equity securities of other entities.
To make loans to entities.

• These activities relate to the purchase, depreciation and sale of long-lived assets, such as land and
equipment.
• Records should include purchase date and price, annual depreciation, current market value, sale
date and price and gain or lost when sold.
Financing activities
Financing activities liability and stockholders; equity items and include:
 Obtaining cash from creditors and repaying the amounts borrowed.
 Obtaining capital from owners and providing them with a return, and return of, their
investment
Financing Activities
Cash inflows:
From sale of equity securities. Generally Long-
From issuance of debt (bonds and notes). term Liability and
Cash outflows: Equity Items
To stockholders as dividend.
To redeem long-term debt or reacquire capital stock

• These transactions relate to borrowing money and paying the interest and
principal on loans.
• Financing activities include money borrowed to finance new investments and
money borrowed to finance production activities.
03
BASIC
ACCOUNTING
TERMS
Asset VS Liability
Definition Definition
All of those things that the A company's debts or
business owns which will have a financial obligations incurred
value to the business over a long during business operations.
period

In a simple In a simple
term term
What you own What you owe

Examples Examples
Machinery, Bank loans, line of
buildings credit
Asset
Current asset
• Assets that are either cash or those can be easily converted
into cash within 1 year.
• Example - Account Receivables, cash in bank, inventory

Noncurrent asset
• Assets acquired not for resale but to be used in operation of
the business with useful lives more than 1 year
• Example - Land, Building, Plant Machinery, Motor vehicle
• Intangible non-current assets that has no physical substance
example brand.
Liability
Current liability
• Amount owing by business that are to be paid within one
year
• Example- short term loan, creditors, bank overdraft, account
payables (creditors), finance lease obligations

Noncurrent liability
• Business obligations that are expected to be fully paid more
than 1 year period
• Example- borrowings, finance lease obligation, deferred income
Debit VS Credit
Definition Definition
Record all of the money flowing Record all of the money
into the account flowing out of the account

Effect Effect
Decrease liability, increase Decrease asset, increase
asset liability

Position in ledger Position in ledger

account account
Left-hand side Right-hand side
Account Account
VS
payable receivable
Definition Definition
An expense that has been Money that others owe to the
incurred but not yet paid company

Effect Effect
Decrease a company’s cash Increase a company’s cash

Recorded as Recorded as
Liability Asset
Accrued Prepaid
VS
expense expense
Definition Definition
An expense that accumulates daily A payment in an accounting
but which has not yet been paid period before it is received or
will be used to produce revenue

Recorded as Recorded as
Liability
Asset

Example Example
Interest on loan and property
Insurance
taxes
Revenue VS Expense
Definition Definition
Income earned through the Cost incurred in the process of
provision of a business' primary producing or offering a primary
goods or services business operation

Form Form
Cash or noncash Cash or noncash

Examples Examples
Cash: Sales Cash: Rent
Noncash: Accrued revenues Noncash: Depreciation
Net farm income
• Revenue minus expenses

Inventory
• The physical quantity and financial value of products produced for sale that have
not yet been sold.
• Farm or ranch for examples would be grain in storage or livestock ready to sale
or that could be sold at the time the inventory is taken.
Owner’s equity
• Represent total equity of owner of the business.
• Owner’s equity is the owner’s claim to the assets. It is the amount of assets that remains
after subtracting the liabilities. It also include profit or excluded loss.
• Owner’s supplied fund to the business for acquisition of assets for operation of the
business.
• Drawing is a situation the owner took whatever of the business assets for their personal
purpose.
• Drawing is decreases in economic resources/owners’ equity when owner took business
assets.
• Example: Contributed capital, retained earnings
Owner’s equity
Capital
• Amounts contributed by
• The profits earned (or minus
the owner to the business
( in the form of cash or
other assets.
Accumulated Profits
the losses incurred) and
retained in the business
Drawings
• Cash or goods taken by the owner
for personal use.
• Represents a withdrawal of profits
and has the effect of decreasing
equity.

Owner’s equity = Capital + Profit - Drawings

Summary
Records provide the
They also provide
information needed to
information needed to
measure how well a
make sound decisions in
business is
the future.
performing.

Any accounting The output desired

system must be able from the accounting
to handle production, system must be
considered when
investment, and choosing one.
financing activities.
 Thanks!
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