Have an ac­crual state­ment pre­pared for true prof­itabil­ity ac­count

Prairie Post (East Edition) - - Farm News - AL­BERTA AGRI­CUL­TURE

Now is a good time to gather in­for­ma­tion to con­vert cash state­ments to ac­crual in­come and ex­penses state­ments. Dean Dyck, farm busi­ness man­age­ment spe­cial­ist at the Al­berta Ag-Info Cen­tre, looks at how to check for farm prof­itabil­ity.

“The ma­jor­ity of farms still re­port their in­comes and ex­penses on a cash ba­sis via their an­nual in­come tax re­turns with the goal of avoid­ing or post­pon­ing in­come tax,” ex­plains Dyck. “Very few ac­tu­ally have an ac­cu­rate ac­crual state­ment pre­pared to give them a true pic­ture of prof­itabil­ity, and if their farm made a profit.”

Dyck adds that the goal, after all, is to make a profit. “Ac­cru­ing your in­come and ex­pense state­ment also gives you the in­for­ma­tion so that you can drill down and re­ally know your cost of pro­duc­tion. It al­lows you to re­flect on those de­ci­sions you made dur­ing the last crop­ping sea­son, and to see if they gen­er­ated a profit.”

“With the right in­for­ma­tion you can con­vert those cash state­ments to ac­crual,” he says. “This will give you a true pic­ture of in­come and ex­pense for your farm and if you made a profit. This in­for­ma­tion is in­valu­able in de­vel­op­ing your pro­jected in­come state­ments and mar­ket­ing plan for 2019. It will al­low you to make bet­ter de­ci­sions into the fu­ture and fully un­der­stand your cost of pro­duc­tion.”

“You will have a bet­ter un­der­stand­ing of what your breakeven points are and when you can take a profit. This knowl­edge will di­rect your mar­ket­ing plans, and your adop­tion of risk man­age­ment tools to pro­tect that profit. If you are cur­rently op­er­at­ing as a cor­po­ra­tion, the fi­nan­cial state­ments gen­er­ated will in­clude an ac­crued in­come state­ment.”

Items that will af­fect the cal­cu­la­tions are year-end numbers for in­ven­to­ries of live­stock, crops for sale, feed on hand, pur­chased sup­plies, ac­counts re­ceiv­able, ac­counts payable and ac­crued in­ter­est.

Dyck says that now is the time to col­lect those numbers. “Most farm­ers will have these numbers avail­able ei­ther from the year-end state­ment that they pro­vide to their banker or ac­coun­tant or from their an­nual AgriSta­bil­ity re­turns.”

The only num­ber that may not be read­ily avail­able is the ac­crued in­ter­est at year-end, so he says that num­ber can be re­quested or cal­cu­lated at this time. “Pro­duc­ers need to have the re­quired numbers for the be­gin­ning of the year and end of the year for the ac­crual ad­just­ments to be cal­cu­lated prop­erly for any given year. 2018 year-end numbers be­come 2019 be­gin­ning year numbers. Ask your­self, Was your farm prof­itable in 2018?

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