Meaning need and purpose, Characteristics of farm accounting, Nature of transactions01/09/2022 2 By indiafreenotes
Farm accounting or accounting for agricultural farms is the application of accounting practices to agricultural operations. In recent years, commercial fanning has been engaging the attention of many and as a result a number of farmers are coming up. Corporate entities are entering into the farming business in a big way.
Therefore, the Institute of Cost and Works Accountant of India issued a booklet, explaining how the farm books should be kept and how the profit or loss arising from the farming operations should be ascertained. The farm accounting is a technique of using accounting data for cost and profit ascertainment of each farming activity and decision making with regard to the most profitable line of activity.
Accounting for Farms:
Transactions, relating to farming activities may be categorized into four-Cash, credit, and exchange and notional. The cash and credit transactions are recorded in normal manner as any other business transaction.
The exchange transactions, in the nature of barter, for example, exchange of animal labour for human labour, exchange of seeds for output, etc. are normally recorded at opportunity cost the price in the open market.
Notional transactions are those that take place between the members of the owner’s family and the farm, viewing the farm as an independent entity notionally. Some examples of such transactions are: use of household capital, use of land owned by the farm household, labour provided by members of the family, consumption of output by the family etc.
Profitability of Crops:
The performance of each crop shall be found out separately. The direct cost clearly identifiable with a crop shall be charged accordingly. The common cost should be suitably allocated on some accepted basis, For instance, depreciation or repairs can be divided on the basis of estimation of usage by different crops. Interest on fixed loan can be divided on the basis of length of crop season etc.
Books of Accounts:
The basic document needed is farm diary, where transactions are recorded in chronological order:
(1) Cash book:
As the business is carried on by families, it may not have time and resources for an elaborate system. The business is mostly carried on cash basis and therefore, by providing analytical columns in the cash book, both on receipts and payments side, the accounting can be made very simple.
Analytical column cash book will help the farmer to do away with other subsidiary books and also the ledger and yet, he will obtain all the information, he needs to prepare the final accounts.
(2) Debtors and Creditors Register, to keep credit transactions.
(3) Stock Register, which shows input and output of goods, sale, wastage and balance of stock.
(4) Fixed Assets Register contains details of cost of assets, depreciation and balance of assets.
(5) Loan Register, contains record of loans, details of interest etc.
(6) Register for Notional Transactions for making a record of transactions between farm and farm household.
(7) Cost Analysis register, for keeping records of each farming activity, in order to know the profit of each activity.