Agricultural Economics IV: (Farm Accounts) - Agriculture Form 4 Notes

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Introduction

  • Financial and physical records if accurately kept in the farm serve as very important tools in decision-maki
  • The records are kept in several books and statements as follows:


Financial Documents

  • They include:
    • Invoices.
    • Receipts.
    • Delivery notes
    • Purchase records.

An Invoice

  • This is a document issued by the seller to the buyer for goods taken on credit, and payment to be done later.
  • The original is given to the buyer and duplicate retained by seller.
  • The invoice shows the following:
    • The buyer and seller.
    • Date of transaction.
    • Amount involved.
    • Invoice number.

A Receipt

  • This is a document issued by the seller to the buyer when cash payment for goods delivered is made.
  • It shows the following:
    • The buyer and the seller.
    • Date of transaction.
    • Amount involved.
    • Serial number

Delivery Note

  • It is a document which shows that the goods have been delivered.
  • The receiver verifies the goods and then signs on the delivery note.
  • The delivery note shows the following:
    • Goods delivered as per order.
    • Quality or condition.
    • People involved in the transaction.
    • Date of delivery.

Journal

  • It is a book of first entry showing a record of all business transactions arranged in the order in which they occur.
  • Its pages are divided vertically into five sectio
  • The information is posted to the ledger

Inventory

  • This is a list of all the possession/assets item by item and their market value.
  • Such items are land, livestock, tools and equipment and crops in the store.
  • Valuation is an estimation of the value of each asset or item, based on market price or cost of production.

Local Purchase Order:

  • Issued by the purchasing officer of the supplier for example school.
  • It shows people involved in the transaction, types and amounts of goods ordered and dates.
  • It should be written and signed by the authorised officer.
  • It is written in duplicate and the original is given to the supplier.


Financial Books

Ledger:

  • Is a book which contains individual accounts.
  • It is a principle book of accounts in which entries contained in all the other books are enter
  • It is a storehouse of all the transactions.
  • Each page is numbered and vertically divided into two equal parts namely credit and debit.
  • Each part is further sub-divided into four sections.

Cash Book:

  • It is a book where transactions involving cash or cheque payments are record
  • It involves cash or cheque payments and receipt
  • It is divided into two parts - debit and credit side.
  • All the receipts of cash or cheque are recorded on the debit and all payments are recorded on the credit side

 

Example: Enter the following entries in the cash book.

  • 1.05 -Received shs.2,000 from Ndete by cheque.
  • 7.05-Bought D.A.P. fertilizer and paid cheque of shs. 5,000.
  • 7.05-Received shs.5,000 cash from Ngala.
  • 4.7.05 -Paid water bill for shs 400 in cas
  • 7.05-Paid telephone bill of 1,500 by cheque.
  • 11.05 -Deposited shs.2,000 in the bank.
  • 20.7.05 -Withdrew shs.2,000 from the bank for home use.
Cash Book record
 Dr       Cr 
 Date Details  Cash  Bank  Date  Details  Cash  Bank 
 1.7.05
 3.7.05
11.7.05
 Received from Ndete
 Received from Ngala
 Cash
 
5000
2000
 2000


 2.7.05
 4.7.05
 9.7.05
20.7.05 
 D.A.P
Water bill
Telephone bill
Cash
 
400
500

5000


2000 


Financial Statements

Cash Account Sheet

  • It involves the recording of sales and receipts, purchases and ex
  • Each sale or purchase is entered twice, once in the total column and once in the analysis column.
  • The sum of all the entries in the total column should always equal the sum of the entries in all the other columns.
  • The cash analysis account sheet is given above.

The Balance Sheet

  • It is a financial statement of assets and liabilities recorded on a given date.
  • It shows the financial position of a farm business at a glance (snapshot).
  • Assets are items owned by the farmer, these include:
    • Property (money, goods and buildings).
    • Debts receivable from other people.
    • Goods and services paid for in advance.
  • Assets can be divided into two:
    • Fixed assets: assets of permanent nature and not easily converted into cash.
    • Current assets: assets which can be easily converted into cash.
  • Liabilities are claims to the farmer's property such as bank overdraft and debts payable. They are divided into:
    • Current liabilities - debts which must be paid within a short time.
    • Long term liabilities - debts which are payable over many years or over a long period.

 

 

 

 

 

 

 

Format of a balance sheet

Balance sheet of Katilo school as 31-12-2009
 Assets  Shs. Cts.  Liabilities  Shs.  Cts. 
 Fixed Assets
 
Land
 Buildings
 Fences and other structures

 Current Assets
 
Livestock
 Debts receivable
 Cash in bank
 Cash in hand

 sub-total

   

Long-term liabilities
Long term loan for land development
Loans payable over 15 years

Current Liabilities
Debts payable
Credits from friends
Short term loans


sub-total

   
 Total      Total    

Profit and Loss Account

  • Prepared at the end of a calendar year.
  • It is a final account which summarises the sale and receipts (income flowing in the business) and the purchases and expenses (flowing out of the business).
  • Note: If assets are more than liabilities then the balancing factor is net capital (in the liability side) hence the farm business is said to be solvent.
  • If the liabilities are more than the assets, then the balancing factor is a loss (in the asset side) hence the farm business is insolvent.
  • To calculate profit or loss, account, valuation is done by having an inventory of all the assets.
  • Valuation of the assets is determined by market price and cost of production for machinery and buildings as depreciation factor, is attached.

Format

Profit and Loss Account of Kitheko Farm at 31-12-2009
 Sales and Receipts  Shs. Cts.  Purchase & Expenses  Shs.  Cts. 
 1. Income during the year
 2. Debts Receivable
 3. Closing valuation

 Balance (being a loss)
     1. Opening valuation
 2. Expenditure during the year
 3. Debts payable 
 
Balance (Being farm profit or net income)
   
 TOTAL     TOTAL    

 


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