Farm accounting

1. FARM ACCOUNTING AND FARM BUDGETING

2. FARM ACCOUNTING FARM ACCOUNTING refers to general analysis of accounts. The chief purpose of farm accounting is to obtain information which will be valuable in the management of the farm, and the accounts are of little value unless a careful study is made of them for this purpose. But for many farmers accounting involves keeping a box of receipts and contracts and taking them to an accountant to get tax records prepared, get ready for a visit to the banker.

3. FARM ACCOUNTING includes systematic records which is maintained by farm manager, so as to put them to good use farm decisions. RECORDS are required for : Keeping track of the financial position. Knowing the cash balance situation. Identifying the weak areas in the business. Strengthening business decisions.

4. FARM ACCOUTING includes ACCOUNTING CYCLE, which refers to the sequence of accounting procedures. Understanding the accounting cycle is very important for a manager so as to comprehend the bulk of the information provided in order to take better decisions .

5. THERE ARE SIX STEPS IN ANALYSING FINANCIAL STATEMENTS : 1.Classifying documents: The information is organized to be used for further analysis. 2.Recording: Entering all transactions into journals . 3.Posting into ledger: Debit and credit changes in the account balance are posted from the journal to the ledger accounts. This step makes the transaction clear in terms of assets, liabilities and owner’s equity account. 4.Preparing the trail balance: Summarize data to check whether the figures are correct and balanced.

6. 5. Preparing income statement, balance sheet and statement of cash flows: This is the most important step to analyse and evaluate the financial position. Here, all the three statements are prepared as they all have their own utility. A balance sheet reports the business’s financial status on a specific date. An income statement shows the revenue, costs, expenses and profit/loss for any specific period of time. 6. Analysing : This involves a manager making notes, disclosing facts, evaluating the success and planning to carry the business forward

7. FARM BUDGETING Farm budgeting is the practice of making proper record of cost, returns and profit of a farm or particular crop. This is good technique and helps the farmer to select the profit making crop and farm operations. Budget helps evaluate alternative plans and select the one that is the most suitable.

8. DIFFERENT TYPES OF FARM BUDGETING There are three main types of farm budgeting: Enterprise budgeting Partial budgeting Full or complete budgeting.

9. Enterprise budgeting The enterprise budgets are the input-output relationship for individual enterprises. An enterprise budget includes all the variable resources required per unit (a hectare/animal/tree, etc.) of an enterprise & its cost, the expected output, gross returns, etc. A format of an enterprise budget is shown in the next slide

10. Items Quantity(kg/ litre ) Value(Rs) GROSS RETURNS Main product By-product Total CASH VARIABLE EXPENSES 1. Seed & seed treatment ( i )Seed Sub-total 2. Manures & fertilisers A. Farmyard manure B. Chemical fertilisers ( i )CAN urea (ii)Superphosphate (iii) Muriate of Potash Sub-total 3. Insecticides & fungicides 4. Tractor fuel cost 5. Irrigation hours 6. Human labour 7. Threshing hours with diesel engine 8. Cost of typing material 9. Marketing charges Sub-total 10. Interest on variable expenses for half the period of growth 11. Total variable expenses 12. Returns over variable expenses 13. Man-hours 14. Bullock labour (pair hours) 15. Machine(tractor hours)

11. Partial Budgeting Partial budgeting is a method of making a comparative study of the cost-and-return analysis resulting from a change in a part of the business organisation . This change may be made through a careful selection from among alternative methods of production or practices, the choice of which is based on the opportunity cost of relative profitability & does not affect the total farm organisation vitally. This technique helps to make decisions whenever small changes in the existing farm organisations are contemplated. The following four points are important in setting up a partial budget: Additional returns from change Reduction in unit cost Reduction in yield, if any Addition in cost incurred.

12. FORMAT OF PARTIAL BUDGETING Debts (Rs) Credit (Rs) (a)Increase in costs (a)Decrease in costs (b)Decrease in returns (b)Increase in returns Gain Loss Total Total

13. Complete planning & budgeting In preparing complete plans for the farm, all the sophisticated analysis of studying an individual cultivator's opportunities, constraints & problems is done. Every little aspect of the farm organisation is examined & then suitable adjustments are studied & a suitable combination as fits in rationally with that given farm organisation is suggested. Various recommendations in terms of augmenting resources, if the need may arise, are also made. It implies the following steps. 1.FARM MAP. The farm is carefully mapped out, giving its salient features, like soil type soil-fertility & rotations followed. Low-lying areas or other such features are also shown in the map. Then based on the previous crop history, land-capability classification is done & is also shown in the map.

14. 2. INVENTORY OF FARM RESOURCES. Every asset on the farm, ranging from hand-tools to sources of power, etc. are inventoried. It does not provide us with the picture of the resources as owned by a farmer, but we can also work out their use-patterns & their condition, i.e. whether they will have to be replaced or whether they will be sufficient for the new plan or some augmentation will be needed. 3. EXAMINING THE EXISTING ORGANISATION. having prepared an inventory of the existing resources & their availability, what we are interested in is their use-pattern within the framework of the existing crop mix, whether the resources are understocked or overstocked. A careful analysis of the restrictions & weaknesses of the farm organisation is made. The weaknesses maybe many, such as: Lumpy units may not be fully utilised . Irrigation may not be adequate. The peak-season labour requirements may not be met. Short-term capital may be inadequate.

15. THANK YOU SHIVAM GUPTA SAHIL RAI JAIN VARUN KUMAR VIKRAM KATARIA