1 Moses Utegi
1Agric. Education Department,
College of Education, Katsina-Ala.
2Mathematics Education Department,
College of Education, Katsina-Ala.
This article aims at analysing the activities of the farmer on the farm of any type practiced in both physical and monetary terms. The importance of records and account to evaluate the farm performance enterprise, managerial control, budgeting, gains and losses and also to enable bank loans to be obtained if the farmer deems it fit cannot be overemphasized. The article also treated inventory records, production, expenditure and income records and special or supplementary records as it encourages diversification or expansion and success in farm management.
Batte and Forster (2008) stated that farm records are systematic records of all activities and transactions regarding all aspects of farm operations. Farm accounting on the other hand, is the extraction and analysis of the farm records for the purpose of determining the assets and financial situations of the farm at a particular period of time (Okojie & Ayinde, 2012).
According to Winkler (2008), farm records and accounts are important tools in farm management. In fact, farm records and accounts are sine qua non to effective farm management. In Africa where a large percentage of farmers are illiterates and unwilling to enlist the services of clerks, some kind of mental record-keeping and accounting is done. Nevertheless, there is a need to encourage the documentation even at the small-scale farmer level of all activities on the farm as well as the expenses and the returns in physical as well as monetary terms within the frame work of general farmer education programme.
Kayode (2002) opines that records and accounting are active process of decision-making in planning, organizing, directing, coordinating, controlling and motivating farm records, accounting and management.
Armstrong (2002) proves records and accounting as essential economic characters since they are concerned with effective attainment of chosen, accepted objectives through the optimal use of resources.
Abel (2000) identified farm records and accounts as an economic, sociological, psychological, mathematical, statistical, logic and practical science.
Reasons for Keeping Farm Records
There are various reasons why a farmer should keep farm records. The reasons may be summarized as follows:
- Farm records are used to evaluate the performance of any farm or farm enterprise within a given period of time. Farm records will enable the farmer to know what each enterprise contributes to the overall progress of the farm.
- Records are an aid to managerial control. With the help of records, a farmer can keep a close check on whether work on his farm is going according to his plans. For instance, he can check on whether he is using too much animal feeds or too much seed or whether crop and livestock yields are falling. It is important to detect where farm activities are going wrong quickly so that they can be put right before losses occur.
- Farm records provide figures for farm planning and budgeting. A farmer making plans to modify his farming activities needs to know what yields he can expect from crops and livestock and what costs and receipts he is likely to get.
- Farm records tell a farmer how much he is earning.
- Farm records tell the farmer where he is gaining progressively or loosing.
- Farm records enable the farmer obtain loans from banks and other financial houses. Banks normally give loans if only a farmer can produce adequate physical records with the corresponding accounting records as well as the overall farm plan. This is necessary and beneficial to both the bank and the farmer for the good use of the loan which must be repaid with interest.
It is the lack of accurate records in small scale farm production that makes it difficult for banks to extend credit facilities to small-scale farmers. It is only presentation of records of what the farmer has already been doing that will convince the banks that the money will be used for what is being asked for (Okojie & Ayinde, 2012).
Types of Farm Records
Having established the need for record keeping, it is now necessary to list types of records a farmer is expected to keep. According to Okojie (2012), farm records can broadly be put into four (4) classes viz:
- Inventory records
- Production records
- Expenditure and income records
- Special or supplementary records
Records could be taken daily, weekly, monthly, or annually depending on the enterprise, the type of record, the kind of farmer or the farm manager. Usually, however, most records are kept on daily basis while monthly, quarterly and annual summaries are made (Dennis, 2003).
1. Inventory Records
An inventory record refers to the complete count and valuation of all assets and liabilities on the farm at a specific date. Assets here refer to all materials, i.e. goods and services, owned by the farmer and used in the production process. Liabilities refer to goods and services which the farm owes others.
An inventory involves two aspects:
(a) The physical measurement or count of the assets and liabilities
Physical records which involves a simple listing of the assets and liabilities of the farm e.g. land in hectarages including what crops are on them, buildings and what the buildings are for, fences and permanent improvements on land such as dams, terraces, etc. other assets include machinery and equipment; supplies such as chains, ropes, fertilizers, seeds, chemicals, gasoline; produce in storage, growing crops, livestock (Okojie, 2012). The physical count of liabilities such as mortgages, notes and accounts yet to be paid, etc. should be taken.
(b) Valuation of the assets and liabilities already listed using appropriate methods.
Assets are classified into fixed assets, working assets and current assets.
Fixed Assets are those with a long life and which are practically impossible to covert to cash to meet short-term or current obligation. They include the buildings, lands, permanent improvements, dairy cattle, breeding stock, etc. While, working Assets are those which can within a relatively short time be converted into cash e.g. seeds, feeds, supplies (drugs) as well as livestock.
Current Assets are those that can be used immediately in production such as cash and accounts receivable. Whereas, long-term liabilities include mortgages which take a long time to liquidate and other long-term debts. Furthermore, medium-term liabilities include debts incurred on the basis of crops in the process of production or poultry and other livestock which will be ready for sale within the production season.
Current liabilities are debts that are due for payment or that will be due for payment within a very short period. Inventories should be taken twice a year – at the beginning and at the end of the year, though with experience the farmer learns to keep inventories only once in the year.
2. Production Records
Production records, also known as physical records are records of quantities of inputs used in the farm and outputs obtained from it. They include records of hectares under various crops, chemical inputs used in various crops, and crop yields. Production records also include livestock records such as the quantities of feed fed to various type of livestock, the weight gains of the livestock, the production rate such as number of eggs collected per day or per week, amounts of milk produced per animals, number of piglets farrowed per sow, etc. labour input records which also fall within production records is usually recorded for each enterprise in either mandays or man hours (Okojie, 2012).
3. Expenditure and Income Records
Expenditure and Income Records are derived from production records and they are the money values of the production records. They comprise purchases and wages (expenditure) and sales (income). Expenditure and income records together with production records normally form the basis of day-to-day management decision (Okojie 2012).
4. Special or Supplementary Records
Okojie (2012) stated that, these are the records which do not fit into any of the categories discussed above but which are very essential for the farm. They include both the farm (layout) map, which can change over time and the farm soil map as well as the legal documents pertaining to the farm. Farm layout map and the soil map are necessary for consistent planning and economical use of the land and its improvements, such as irrigation facilities.
General Principles of Farm Record-Keeping
According to Okojie (2012), there are some general principles which apply to all record keeping. All records, to be of value, must be accurate, neat and full. One way of making sure that records are accurate is by filling them in as soon as possible after the operation or transaction and by checking regularly. The other important role in keeping accurate records is actually to measure quantities. It is no use guessing the area of lad or yields of crops. All the results should be compared with some standards. The standards for comparison might be the result for previous years or the results for other farms. By comparing results and discussing problems together, farmers can help each other to improve their management:
The best possible measure of capital position or networth of the farm at any given time is shown by the yearly balance sheet. The balance sheet shows the assets and liabilities of the farm business at a specific point in time, usually the last day of financial year shows. However, nothing prevents one from making an accounting year correspond with the production (Dennis, 2003).
An Asset is defined as anything of value possessed by the business or any claim to values in possession of others. A liability on the other hand, is a claim which people outside the business have against the business.
Net Income Statement
A net income statement otherwise called profit and loss statement is a summary of expenditure and income and it aims at giving a snapshot of a production cycle’s performance.
- Total production or returns – the income from sales and other sources together with other valuation of crops and livestock in sock at the end of accounting period
- The total expenditure – the sum of expenditure plus valuation of input resources at the beginning of accounting period.
- Profit of net farm income – this is the amount by which the value of total products produced in the accounting period exceeds the value of the total resources used during the same period (Dennis, 2003).
Valuation of Farm Inventory
Valuation means attaching prices to given assets like buildings, vehicles, growing crops and livestock, stored products, etc. a farmer is expected to keep statements of the value of stocks at the beginning and end of an accounting year or period for a particular farm; this helps to show the true worth of the farm at the given period (Johnson & Kaplan, 1991).
There are various methods of valuation and the valuation will usually determine the method to use. For consistency the same method of valuation should be used each year since the method of valuation affects the profit or loss on a given farm.
The followings are the common methods of valuation:
(i) Valuation at cost or market price, whichever is lower. These are used for valuing purchased farm supplies.
(ii) Valuation or net selling price. This method is used for assets that are meant for sale.
(iii) Valuation at cost less depreciation used for such assts as machinery and breeding livestock.
(iv) Valuation by reproductive value or replacement cost. This method is used to value assets in terms of what it would cost to reproduce them at present prices and under present methods of production.
Depreciation of Farm Inventory
Closely associated with the concept of valuation is depreciation concept.
According to Johnson (1991), it is not very easy to formulate a clear cut definition of depreciation. It may, however, be defined as a method by which the cost of capital items are distributed over the number of years those capital items are expected to serve. Those number of years that capital items can conveniently serve is called its lifespan or useful life. The annual depreciation of a tractor is meant to represent the wear and tear as a result of using it. Such a tractor can therefore be replaced say, in five years time by setting aside such annual depreciation as savings to purchase a new one when it is due for replacement. Farm implements decline in value even when not used.
The rates of depreciation of a particular type of asset differ depending on the handling, rate of usage and the maintenance. Different assets also depreciate at different rates.
Farm Business Analysis and Appraisal
Johnson (1991) states that, farm business analysis and appraisal is the systematic process of identifying, classifying and evaluating the characteristics and resources of a farm in order to make a well reasoned judgment of its economic and technical potentials. The making of farm appraisal involves two major parts viz:
(i) Physical Appraisal – identification, classification and enumeration of physical resources on the farm.
(ii) Economic appraisal – valuation, which is the placing of values on the resources on the farm.
Objectives of Farm Business Analysis and Appraisal
According to Carlson (1988), farm business analysis and appraisal is carried out with the aim of determining the technical and economic potentials of a farm. Farm business appraisal is also carried out to be able to locate the weaknesses and strength in an existing farm business organization. A great of nation’s capital is devoted to agricultural production. A misallocation of this resources would be detrimental to the economy of the nation as a whole. From point of view of the indigenous farmer and the nation as a whole, great effort should be devoted to the periodic analysis and appraisal of farm so as to take advantage of changing technology and economic condition.
Method of Farm Business Analysis
There are different methods of Farm Business Analysis and a particular technique to use depends on the farm and type of farming and also the farm and availability of local efficiency standard. The common methods include the following:
(i) Enterprise costing or complete costing
(ii) Whole farm analysis
(iii) Gross margin analysis
(iv) Balance sheet analysis
Enterprise or Complete Costing
This is one of the oldest techniques. The objective of enterprise costing is to allocate income and expenditure of the farm between various enterprises so as to show:
(i) The account of profit or loss earned by each enterprise.
(ii) The cost per unit of each product in relation to its selling price.
It involves the splitting up and apportioning of all farm costs including the fixed cost between the various enterprises (Abel, 2008).
Advantages of Complete costing or Enterprise Costing
- The result of enterprise costing can make a considerable contribution to good farm management. This is especially true if the farmer specializes in one enterprise or when the farming system is relatively simple.
- It makes it possible to identify the items of the cost which have to be cut down in order to reduce cost of production.
- Splitting up of cost between enterprises is unrealistic and time-consuming. E.g. in order to allocate labour cost to different enterprises you have to keep time sheet, keep record of job done and hours spent. That even becomes more complicated if the same man works in many enterprises in a day.
- The system also involves an elaborate system of keeping record which many farmers don’t have the time or knowledge.
- Complete costing cannot locate weaknesses or inefficiencies in farm organization. Many farmers would e interested in the indication as to which enterprise to reduce or abandon in order to increase the profit.
Whole Farm Analysis
By treating the farm as whole, this system avoids the unrealistic and time consuming exercise of splitting up farm cost between enterprises.
This starts with consideration of profit. If the profit is enough in relation to the capital investment of the farm and the type of living it has to support, it goes on to examine the factors affecting profits and it goes on to compare the performance level with the results of other farms and with the estimate of the potential of individual farms (Armstrong, 2002).
Advantages of Whole Farm Approach
- It uses individual farm and comparative farm sample data which are often readily available.
- It is a systematic approach.
- It gives little direct guide to those sectors of the farm where efficiency can be improved if the farm is already run more efficiently than the comparative sample farm.
- Because it is a system of analysis which operates at a whole farm and not in enterprise level, inefficiency at certain enterprises might be marked by efficiency elsewhere.
Gross Margin Analysis
The gross margin analysis overcomes some of the defects of whole farm analysis. It measures the margin between the gross output and the variable cost for each enterprise. The basic economic concept of the gross margin analysis is based on the recognition that farm cost can be divided into fixed and variable cost (Kayode, 2000).
Advantages of Gross Margin Analysis
- The principles involved in the diagnosis of efficiency are easy to grasp.
- There is no marking of inefficient sector of business by more efficient one.
- It is applicable to farms which are already running at high levels of efficiency.
- Gross margin allows easy assessment of economic efficiency of each enterprise through their individual contribution.
- The same information or data used in examining the farm system can be used to plan new system.
- Budgeting with gross margin tends itself to a logical process of selection.
1. The main fault with the gross margin is that it gives no immediate guide as to whether attention should be directed towards changing the farm system or towards improving the efficiency or production of the present combination of enterprises.
Since farms records and accounts are important tools in farm management and are in fact, the sine qua non of effective farm management, farmers all over the world at whatever level should be encouraged to keep records of all the activities carried out on the farm from the beginning to the end of each farming season and be accountable for effective present and future performances.
- Bank loans should be given to farmers annually to encourage accountability.
- Illiterate farmers should employ family members who are educated for record keeping.
- There should be massive campaign from government agents encouraging farmers to keep records.
- There should be low taxation charges from government for farmers who keep farm records.
- Government at all levels should only distribute fertilizers, agro chemicals and other subsidized farming tools to only farmers who keep their records.
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Armstrong, C.J. (2002). Farms perception about farm records. Alberters Press, Abeokuta, Nigeria.
Batte, M., & Forster, L. (2008). “Ohio Farm Computer Usage,” Farm Management Update, Winter 2003-04. 20
Carlson, J.E., (1988). “Farmers’ Perceptions About the Management of Their Farms,” The Journal of the American Society of Farm Managers and Rural Appraisers, Vol. 52, pp. 91-96.
Dennis, M. (2003). Residential Mortgage Lending. Southwestern Educational Publishing. Pp. 105-109.
Johnson, H. T., & Kaplan, R.S., (1991). Relevance Lost. Boston: Harvard Business School Press. Pp. 117-118
Kayode, B.A. (2002). Farm records and statistics. Alvaton Press, Ibadan, Nigeria.
Okojie, L.O., & Ayinde, I. A. (2012). Course materials for AEM 302, Principles of Farm Management. Open Courseware, University of Agriculture, Abeokuta, Nigeria.
Winkler, M.M., (2008). “Farm Accounting from the Viewpoint of the Farmer Manager,” Journal of the American Society of Farm Managers and Rural Appraisers, Vol. 2, April 2008, p.27.