How To Check Yourself Before Someone Else Does: Internal Checks/Audits on Farm

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agrisolutions 15 things to know about farm finances ebook

women writing in a financial bookletThere is an old saying in Accounting that goes, “A Good Accountant Never Makes Mistakes”, but we are all human, and mistakes do occur. The trick is, in accounting, to catch those mistakes before someone else does. But how? The simple answer is review, reconcile, review, and reconcile - in that order.

Farm Financials and ACT

The financial report of a farm business, or any business for that matter, must be Accurate, Consistent, and Timely (or ACT).  Financial reports support management decisions, provide financial metrics for analysis, and report against key business targets. Financial reports are used in tax planning, financial filings, and help lenders make decisions. They provide information about your business to ag lenders in the areas of financial performance, quality of assets, and the ability to repay. Before sending any farm business financials, be sure to review and reconcile…and then review and reconcile again.

A key area for any business is the farm balance sheet. Review the balance sheet account by account and analyze all amounts. Know what each number is made up of and take ownership in your financials.

The most common form of reconciliation is a bank reconciliation. In a bank reconciliation, you need to make sure all withdrawals are entered, all deposits are accounted for, all differences can be explained, and that the bank balance equals your records. The exact same process applies to all balance sheet accounts. You should know what each balance represents by recognizing, researching, and correcting any issues.

As a start, review and reconcile the following:

Current Assets:

  • Cash
  • Accounts Receivable
  • Inventories
  • Prepaid Expenses
  • Marketable Securities/Hedge Accounts

Fixed Assets:

  • Machinery and Equipment
  • Vehicles
  • Buildings
  • Building Improvements
  • Accumulated Depreciation
  • Land

Current Liabilities:

  • Accounts Payable
  • Credit Card Accounts
  • Accrued Expenses
  • Payroll Liabilities
  • Line of Credit Accounts
  • Leases Payable

Long-Term Liabilities:

  • Notes Payable
  • Lease Payable

Inter-Company Transactions:

  • Loans To/From a wholly owned Entity to another Entity

Equity:

  • Owners/Partners Capital Accounts
  • Owners/Partners Draw Accounts
  • Common Stock
  • Additional Paid in Capital
  • Fair Market Value Adjustments
  • Retained Earnings

Account Reconciliation is Everything

Effectively managing  account reconciliation activities can greatly increase a management teams’ ability to proactively identify and resolve issues that could result in misstatements in financial accounting and reporting records and lead to substantial write-offs. Many common account reconciliation problems are preventable. By creating and implementing appropriate reconciliation and information management processes, improving organization, training, and automation, companies can gain assurance of the accuracy of their general ledger balances.

Scheduling financial reports improves the overall timeliness, efficiency, and effectiveness of the statement. Processes should have reconciling features built into them, such as an inventory processes of comparing weights and quantities from different sources, fixed asset processes (including a physical search of scheduled assets), and accounts receivable/accounts payable processes (including a reconciliation of customer/vendor statements to open invoices in accounting software).

Farm Accounting Software is a Framework for Success

Accounting software supplies a framework for success, but does not, by itself, deliver success. You need a qualified staff who knows what and how to do accounting and use the software correctly. You need a defined process that incorporate concepts like reconciliations and consistent reporting. Those processes should be able to immediately produce financial statements and you should feel confident in those statements. Consider creating a customized Financial Report Package that allows financial data to be submitted to management Accurately, Consistently, and Timely (or ACT). When this is done in conjunction with account reconciliations, it becomes a valuable tool for making effective business decisions and can create a large impact.

If you could use help with your farm’s financial processes, the consultants at AgriSolutions are here. We can assist you with reconciling, reviewing, preparing, analyzing, and applying financial data for the optimal success of your agriculture business.

For ongoing updates with helpful insights for your farm, subscribe to the AgriSolutions blog.

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Written By

Amanda Fields

Amanda Fields

Senior Accountant | afields@agrisolutions.com

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