FARM

FARM RECORD
RECORD
KEEPING
KEEPING
RUBI R. ORBETA
BUCAF, Guinobatan, Albay
Importance and Uses of Farm
Records
These are written statements or collection
of facts and figures on a subject for a
definite purpose. These records arise from
the day-to-day transactions made by the
farmer and should be accurate. They are
used in identifying the strong as well as
the weak areas of the farm business, in
recognizing problems, and in determining
solutions to those problems. They are used
as the bases for the farmer’s key decisions
concerning farm operations.
 Features of Farm Records

Easy to understand
Easy to maintain
Contains necessary facts and figures
Organized to suit the needs of a
particular farm
Classification of Farm Records
Physical – it contains information on farm
productivity, like the records on crop
production, livestock production, farm
machinery and equipment. They provide
data which will later on become part of the
financial records under the account heading
Inventory.
1. Crop production record – this is
maintained mainly to monitor crop
production activities. It gives the name of
the crop being cultivated, the date of
planting, the allotted area, the time to
harvest and the actual volume of production
at harvest time and its worth in pesos.
 CROP PRODUCTION
RECORD
Crop Area (Ha.) Date Volume of Value (Php)
Production
Planted Harvested

Rice 1.0 06-05-07 10-02-07 100 cavans 40,000.00

Peanut

Corn

Eggplant
2. Livestock and poultry production
records - production record for
livestock largely differs from that of
crops. In swine for example, both
weanlings and fattening hogs are the
main products, breeding animals will
have individual records. This will
allow the farmer to keep track of the
performance of each breeder, and of
the farm as a whole in terms of
production.
SWINE PRODUCTION RECORD
Sow No.: _____ Source: _______
Date of Birth: _____ Breed: _______
Date Breed Date No. of No. of Piglet No. Remarks
Farrowed Piglets pigl Mort Sold
at Birth ets ality
at
wea
ning
3. Machinery and equipment
record -this record yields data on
the items of fixed investments which
are available and serviceable in the
farm. It also gives information on the
time for possible replacement as
indicated by its depreciation value or
the number of years of use.
MACHINERY AND EQUIPMENT RECORD
Year Ending: December 31, 2006
Item Date Acquisition Expected Useful Beginning Annual Ending Inventory
Acquired Cost Life Invent Deprec
(Years) ory iation
Valuation and Depreciation
The concept of valuation and
depreciation plays a vital role
in the preparation of the
Balance Sheet. This gives a
more or less objective value
of the different fixed assets
included in the statement.
Four Methods of Valuation
1. Original Cost – the actual
purchase cost. This method is
used on assets with a short life
span and whose values do not
change drastically.
2. Normal Market Value – used to
estimate average selling price of
the property over a period of
years
3. Present Market Value – assigns
prices appropriate for the property
if sold at the time the inventory is
taken. Example is land.
4. Original Cost Minus Depreciation
– uses some mathematical formulas
in coming out with the amount for
depreciation. The depreciation
amount (in years, quarterly or
monthly) may be computed using
the straight line method:
 Acquisition Cost – Scrap Value
Annual Depreciation =
________________________

Life Span
Ex. Hand Tractor
50,000.00 – 8,000.00
Annual Depreciation =
_________________
15 years
= Php 2,800.00

After computing the annual depreciation (Php

2,800.00), the value of the tractor, after one year
and until it is used for the duration of its life span
(15 years) is shown in the table.
DEPRECIATION OF A HAND TRACTOR
WITH A LIFE SPAN OF 15 YEARS

Year Acquisition Annual Depreciation Book Value

Cost (Php) (Php)
1 50,000.00 2,800.00 47,200.00
2 2,800.00 44,400.00

3 2,800.00 41,600.00

4 2,800.00 38,800.00

5 2,800.00 36,000.00

6 2,800.00 33,200.00

7 2,800.00 30,400.00

8 2,800.00 27,600.00

9 2,800.00 24,800.00
Financial Records
These are accounts of financial transactions
of a farm business. These show the amount
of money received from each source and
amount spent for each purpose in a year.
Financial records are statements of the past
performance of farm business. These cover
a definite period of time, indicate a
monetary position of the business for that
particular period, how well that business
performed at that particular period, and the
sources and uses of cash during that period.
The Balance Sheet
This shows how much a farm
business is worth at a given point in
time. It reveals the monetary
equivalent of assets owned by the
business, the claims of others
against these assets and the net
worth or owner’s equity.
 FITS FARM
Balance Sheet
As of December 31, 2006
ASSETS LIABILITIES
Current Assets: Current Liabilities:
Cash Accounts Payable
Accounts Receivable Notes Payable
Notes Receivable Taxes due this year
Feed or animal, grain, fertilizer, seed, etc. Total Current Liabilities
Inventory
Total Current Assets Intermediate Liabilities:
Intermediate Assets: Loans (with planned maturity of 1-10 years)
Machinery (with useful life of 1-10 years) Total Intermediate Liabilities
Breeding Stock, purchased Long-Term Liabilities
Breeding Stock, raised Loans (for the purchase of land)
Total Intermediate Assets Total Long-Term Liabilities
Fixed Assets: Total Liabilities
Land Net Worth (or owner’s equity)
Buildings
Tools and Equipment (expected useful
life of more than 10 years)
Total Fixed Assets

Total Assets Total Liabilities and Net Worth

The total assets should be equal to the sum of the
total liabilities and the owner’s equity. Expressed
in equation form,
TOTAL ASSETS = TOTAL LIABILITIES +
OWNER’S EQUITY
Before the balance sheet could be constructed,
an inventory of all farm resources and other items
should first be taken. These items include cash,
receivables, unsold products, material inputs,
machinery and equipment, breeding stock in the
case of livestock enterprise and seed stock in the
case of crop production, land, buildings, tools and
equipment, and such other particulars which are
needed in the operation of the farm. These items
form the asset side of the balance sheet.
The Income Statement
The income statement, also called
the profit and loss statement, reveals
the financial performance of the
farm. It determines the net income
derived from the operation during
the accounting period. The general
format is:
FITS FARM
Income Statement
For the Year Ending December 31, 2006
Farm Income:
Cash Php
6,000.00
Non-Cash 3,500.00
Total Farm Income Php
9,500.00
Less: Cost of Production
6,700.00
Gross Farm Income Php
2,800.00
Less: Other Expenses
200.00
Net Farm Income
2,600.00/6,900.00 = 37.68%

==========
7% PA = Php
483.00
Cash Flow Statement
The cash flow statement gives information
about the sources and uses of cash during
a past period (usually the past year) or
during a future period. If it is for a future
period, it could be a budget for the next
year. In order to be more useful to the
farmer, this record should include both
farm and family sources and uses of cash
since in practice the cash needs of the
farm family and farm business are not
separated.
The cash flow statement normally
indicates the total cash available
(operating receipts, capital receipts and
non-farm income) and total cash
required (operating expenses, livestock
and feed purchases, capital
expenditures, and other expenditures
in the operation of the business. It also
shows the disposition of cash surpluses
or use of savings and borrowing cash to
resolve flow problems.
Subsidiary Records
The development of a framework showing record
relationships and how they affect and contribute
to the preparation of the balance sheet and
income statement should be the next activity to
be done after setting up the different farm
records and accounts. The framework serves as
an immediate source of data and information for
analysis and appraisal.
A well-prepared record system is expected to:
1. Provide data for farm planning and budgeting
2. Aid in preparing tax returns and reports
required by the government
3. Give data for group and action on local,
regional or national programs
4. Provide data/information useful in
property valuation.

In setting up farm records, the balance

sheet and income statement are
considered the ultimate objectives.
Items of these two statements are
supported or documented with
subsidiary records using the forms
found elsewhere in this unit. In addition
to these forms, the farmer or record
keeper can still come up with other
forms.
The Balance Sheet Subsidiary Records
Inventory in crop and livestock
Records for receivables and their collection schedule
Records for valuation of fixed investments, in
itemized form, considering their depreciation, and
The cash records, whether on hand or in the bank
The Liability subsidiary records would include:
The schedule of bank loan repayments and its
balances
Enterprise payables to specific creditors
Unpaid salaries and wages for labor during the time
of balance sheet preparation, which were already
declared as expenses for the accounting period.
The Income Statement Subsidiary
Records
Subsidiary records for income statement
include records on sales/receipts and
expenses. A farmer may choose to
construct records of a) receipts and b)
expenses for an individual farm business
system. The two subsidiary records
contain basically the same items though
they may differ in magnitude of
coverage, depending on what the record
keeper may select. Subsidiary records of
receipts will include:
The volume of production of what product
The unit price
The name of the buyer (may be optional)
 A simple farm receipt may be issued
by the farm for later reference.
Subsidiary records of expenses will
include:
Direct input expenses, like fertilizer,
seeds, seedlings and other direct
material input
Labor expenses
In the same manner the quantity
used and its unit price will be
included in the record.
 SUBSIDIARY RECORDS OF
RECEIPTS/SALES FOR THE YEAR 2006
Time Farm Products TOTAL
(Month)
Product 1 Product 2 Product 3
Qty Unit Value Qty Unit Value Qty Unit Price Value
Price Price
1

9
Non-cash receipts and expenses will be
noted. For purposes of consistency, giving
the money value to non-cash item may be
deemed appropriate for ease of record
keeping.

Identification of the balance sheet and

income statement accounts is important in
this regard. Failure to do this would lead to
misinformation and the purpose of record
keeping will be defeated. For the purpose of
developing a good record system, pro-forma
records preparation is recommended to be
the first activity, giving considerations on
their detail and information needed.
Farm Record Analysis and
Interpretation
Farm business survey or farm
accounting begins with the
determination at the proper
measure of income and the
computation of management and
efficiency factors for individual
farms. Analyses are then made to
ascertain the relationship between
management factors and income.
Tabulations and charts of farm
records are made to show the
factors which affect farm
success and failure, so that an
individual farmer, by
comparing his performance
with these measures of
standards, may recognize his
weak points and take the
necessary steps of
improvement.
The analysis of the financial status of an
enterprise usually consists of determining
groups of specific ratios from selected
items in the balance sheet and the income
statement. The complete picture of the
financial status of an enterprise can thus
be determined on the trend of each ratio
taken from several consecutive years of
record keeping.
The managerial and technical abilities of
the farm manager in keeping important
farm records are of paramount
importance, with respect to running a
successful farm enterprise.
He assures the financial performance of
the business enterprise to serve as the
basis for allocating and controlling the
limited resources of the business. This
process involves ratio analysis and,
sometimes, percentage analysis as in
the case of comparing two financial
statements. The results of these
mathematical computations can be
interpreted independently, or as a part
of the ultimate measure which is the
return on investment (ROI).
Furthermore, comparison is also possible
with other business enterprises
practicing the same technique, to allow
a better picture in the total operations.
 There are four main groupings of
the commonly used ratios in the
financial
analyses, namely:
• Measure of profitability
• Measure of liquidity
• Measure of asset turnover, and
• Measure of the use of debt
Measure of profitability – this indicates
operational performance and efficiency of the
project; expresses the rate of return on the equity
of the owner and relates the ability of assets in
generating profit; standard level of acceptance is
1:1 or better for return on sales and the higher, the
better for return on assets:
Ex. 1:
Net Income
Return on Sales = _________
Net Sales
= Php 500.00

_________
2,000.00
= Php 0.25:1
 The result shows that for every peso sale,
the business is earning Php0.25. This may
be translated as 25% of sales is actually
net income.
Ex. 2:
Net Income
Return on Assets = _________
Total Assets

Php 500.00
= __________
25,000.00
= 0.02
This means that a peso asset is able to generate Php0.02
net income. The figure is too low to reflect a slow utilization
of assets in generating income.

Measure of liquidity - used to measure the ability of the

business to meet short term obligations and remain solvent
in the event of adversities. It indicates the firm’s ability to
liquidate all liabilities that are due within one year. A high
current ratio may mean excessive build-up of idle cash and
suggests excess liquidity. Liquidity measures by acid test
ratio or quick ratio concentrates on strictly liquid assets to
which current liabilities could be liquidated on short notice.
It also indicates the firm’s ability to meet long-term
obligations. The standard value of acceptability is from 1:1
or better.
Current Assets
1. Current Ratio = _____________
Current Liability
 = Php 1,000.00
100.00
= 10:1
The result indicates that the business has
Php10.00 available to pay a peso
indebtedness. This picture or ratio,
however, is not desirable in as much as
the business enterprise is keeping to much
idle liquid asset. Too much current asset
also indicates the manager’s ability to look
for opportunity and the avoidance of using
it due to the risk and uncertainties
involved in the investment
 Quick Asset
2. Acid Test Ratio = __________
Current Liability
= Php 500.00
Php 100.00
= Php 5:1
This ratio again indicates that the business
enterprise can easily pay its debts in short
notice. A 5:1 ratio reflects the inability to
utilize these liquid assets optimally as
against the 1:1 standard value of acid test
ratio.
 Measure of asset turnover – this tests
the effectiveness in the use of resources. It
indicates the amount of sales generated
per peso. The standard investment asset is
that the higher is the generated income,
the better.
Ex.
Net Sales
Asset Turnover = _________

Total Assets
= Php 2,000.00
Php 25,000.00
= 0.08:1
A Php 0.08:1 ratio means that a peso invested on
assets was able to generate Php 0.08 sales. A
higher figure would be desirable inasmuch as it
indicates how the management utilizes its
resources or assets.
Measure of use of debt – presents the ability of
the enterprise to meet long-term obligations. The
debt-to-equity ratio determines the proportion of
debt in the capital structure. It is said that when
the cost of debt is high, a high ratio may prove
undesirable. On the other hand, the debt-to-asset
ration indicates the proportion of funds
contributed by creditors. A higher cost of credit
would require lower production.
The measures are substituted below with their
corresponding interpretation.
Debt-to-Equity Ratio= Long
TermDebt

______________
Owner’s
Equity
= Php10,000.00
Php10,000.00
= Php1:1
This means that the business is equally
financed by both the creditors and the
owners. A higher ratio (ex. 2:1 or more) is
more desirable when the cost of credit is
cheaper than the cost of owner’s
investment. The cost of credit is primarily
defined by the rate of interest, while the
cost of owner’s investment is measured by
the opportunity cost if invested in other
ventures.
Total Debt
Debt-to-Asset Ratio = _________
Total Asset
= Php 10,000.00
Php 25,000.00
= 4:1
This means that for every peso asset
of the business, creditors own Php
0.40 of it. In other words, 40% of the
total asset is owned by creditors,
while the remaining 60% is owned by
the proprietor.