Preparing to keep good farm accounting records
Recordkeeping can be overwhelming, but breaking it down into smaller tasks makes it easier
There are a lot of small steps to farm bookkeeping, and this may make it seem like a daunting task. Being well prepared will help you be effective once you are ready to tackle your journal entries.
The first step to recordkeeping is collecting all the receipts or bills, so they aren’t accidentally thrown away. If you buy items in town, keep a box or folder in the car to gather receipts to take into the house periodically. Be sure the date, amount, form of payment, vendor, and item are noted on the receipt.
Make sure you have a dedicated box or folder in the house or farm office to put the receipts you bring from the vehicle until you have time to input them in your journal. As you do this, do a first round of classifications to determine the types of receipts you have. If you don’t do it immediately, you’ll have to do it later. Some people like classifying them by expense accounts, such as supplies, seeds, and car and truck maintenance, based on the IRS Schedule F form. This makes it easier to file taxes at the end of the year. I also like classifying them into cash and credit card or check. The reason I like classifying them into cash and card or check, is that whatever we pay in cash will be harder to reconcile because the only information I will have is the receipt, while card and cash payments are already reconciled within my bank statement. Cash payments are also a lot more prone to entry errors or omissions. So I have two boxes instead of one. A cash box which is my “pay attention” box, and a card/check box which is my “easy” box. You should have as many boxes or folders, as categories you decide to divide your receipts in.
Remember that if you make any purchases online, you should also print the receipt and put it in its corresponding folder.
I like keeping receipts in a cloud drive instead of a box or folder. I just scan any physical receipts and then throw them away. This frees up office space and makes it easier for me to keep them organized and go back to them if I ever need to, even if I’m not in the office. I use Office Lens, which is a picture taking app for your phone that can keep photos of receipts separate from your daily photos, so that they don’t end up buried among kids or cow photos. If you are more of a Google fan, the Google Drive phone app also has a scanning feature.
I classify receipts as I scan them, so I don’t really keep a physical cash and a card or check box, but two folders in my Microsoft OneDrive virtual drive. I have found that Office Lens allows me to do this pretty seamlessly, but you can do the same in the Google environment if you prefer that. If I make any purchases online, instead of printing the receipt and putting it in a physical folder, I add the pdf receipt file to my check or card OneDrive folder. Whether it’s Microsoft or Google, real or virtual, we suggest you find a system that works for you and stick to it until you find something that works better.
Bookkeeping is an achievable endeavor, if you can design a system that works for you and then be consistent with it. If you need help or more resources, contact your Michigan State University Extension Farm Business Management educator.
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