:FARM ACCOUNTS AGRICULTURE NOTES FORM 1-4, TOPICAL QUESTIONS AND ANSWERS, FORM 1,2,3& 4, KCSE PAST PAPERS,){kind=link}
AGRICULTURAL ECONOMICS IV. (FARM ACCOUNTS).
AGRICULTURAL ECONOMICS(IV):FARM ACCOUNTS;Importance of keeping farm accounts.
- Helps the farmer to secure loans. Helps to determine whether the farmer is credit worthy.
- Helps to make sound management decisions. Provide data that helps in planning and decision making.
- Helps to determine whether the farmer is making profits. Records indicate whether the farm is running at a profit or loss.
- Helps to prepare farm budget. Helps a farmer to draw estimates for future income and expenditure especially in preparing partial budget.
- Evaluating assets and liabilities. Helps in assessing the farm’s ability to pay what it owes others.
- Assessing the tax chargeable. Helps to estimate the amount of tax that can be charged so that the farm is taxed fairly.
Financial documents.
Invoice.
Document used when goods are delivered on credit. It is issued to inform the buyer of the goods delivered and debits the buyer.
Details contained.
- Date of transaction.
- People involved in the transaction.
- Types and quantities of goods delivered.
- Total amount of money involved.
- Invoice serial number.
- Terms of payment.
It lists any discounts allowed and specifies period within which payment should be made. It is the first accounting document in a credit transaction.
| Invoice.
No 20175 Date 14.2.2003 M/S Kikwetu Farmers Store DR……..Kitaro Farmers’ Co-operative Union P.O BOX 104 Mau Narok.
|
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| Particulars. | Quantity. | Price per unit. | Amount. | |
| 1 | Layers mash | 20 bags. | 1200:00 | 24000:00 |
| 2 | Dairy meal. | 5 bags. | 850:00 | 4250:00 |
| 3 | Maize seed H02 | 1 (10 kg) bag. | 27600:00 | 27600:00 |
| 4 | DAP | 2 (50Kg) bag | 1250:00 | 2500:00 |
| Delivery details. | Totals. | 58350:00 | ||
|
Order No: KFCU
Discount – None.
Terms of payment: cash payment within 30 days upon receipts of goods. |
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AGRICULTURAL ECONOMICS(IV):FARM ACCOUNTS
Statements.
- Statement of account.
- Bank statement.
Statement of account.
Document sent to the buyer by the seller as a reminder to inform him/her what he/she owes the seller. It is usually written at the end of the month.
Bank statement.
Financial document sent by the bank to the farmer on a monthly basis to show the position of the bank account by the end of the month.
Receipt.
Document issued when cash payment for goods delivered or services rendered is made.
Document showing that payment has been made.
Details contained in a receipt.
- People involved in the transaction.
- Date on which payment was made.
- Goods or services for which payment was made.
- Amount of money involved.
- Signature of the person receiving the money.
- Serial number.
Receipts that are not headed must bear the official stamp of the business firm to be varied.
Should have a revenue stamp for money exceeding forty shillings.
It should show the mode of payment that is, is it cash, cheque or money order.
| RECEPIT.
Kikwetu Farmers Store. P.O BOX 74 MAU NAROK. TEL NO……………….. No……………………….. Date…………………………………… Received from………………….. Being payment of………………………. Amount Kshs……………………….. Cash/cheque. |
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| Signature…………………………………. | |||||
| E&O.E Revenue Stamp. | |||||
| A CASH SALE RECEIPT
KIKWETU FARMERS STORE P.O BOX 74, MAU NAROK TEL…………………….. Date……………… M/S……………………………… |
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| Quantity. | Particulars. | @ | Sh | Cts | |
| 10 Kgs | Maize seeds H.614. | 700 | 700 | 00 | |
| 1 (50kg) bag | DSP fertilizer. | 1250 | 1250 | 00 | |
| E&OE | No………….. | Total. | 1950. | 00 | |
| Goods once sold cannot be returned. | |||||
AGRICULTURAL ECONOMICS(IV):FARM ACCOUNTS
Delivery note.
Document that accompanies goods on delivery. Serves as evidence that goods have been physically delivered from the supplier to the buyer after a credit transaction.
Details contained in a delivery note.
- Date of delivery.
- Quantity and types of goods delivered.
- Method of delivery.
- The person who receives the goods.
- Condition in which the goods are received.
- Serial number.
| No.30181 Delivery note.
Kikwetu Farmers Store. P.O BOX 74 MAU NAROK TEL……………. To Kitaro farm Delivery No………………………… P.O BOX 104 Date……………………………….. MAU NAROK
Please receive the following. |
||
| Item. | Quantity. | Particulars. |
| 1 | 20 bags. | Layers mash. |
| 2 | 5 bags. | Dairy meal. |
| 3 | 1 (10Kg) bag | Maize seed H614 |
| 4 | 1 (50 kg) bag. | DAP |
|
Delivered by……………………………… received by………………… Signature and stamp |
||
Purchase order.
Request to a trading business firm to supply specified goods.
Precise details should be given to avoid misunderstanding that may cause delay in supply or supply of wrong or incorrect quantities of goods. The purchase order number should be quote when invoicing the buyer.
Details contained in a purchase order.
- Types of goods required.
- Quantities of the goods.
- Date of order.
- Date within which the ordered goods should be delivered (optional).
- The person who orders the goods.
- The authorising person (makes it valid and control expenditure.).
- Serial number.
| Purchase order.
No 2080 Heri Farm P.O BOX 22 NAKURU. Tel ………………… Date……………………………….. To: Kenya Farmers Association P.O BOX 35, NAKURU
Please supply the following. |
||
| Item number. | Particulars. | Quantity. |
| 1 | Dairy meal | 2 bags (90 kg bag) |
| 2 | Maize seed H 614 | 1 (25Kg) bag. |
| 3 | DAP | 1 (50 Kg) bag |
|
Ordered by……………………….. Signature ………………………. Authorised by…………………….. Signature………………………… |
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AGRICULTURAL ECONOMICS(IV):FARM ACCOUNTS
BOOKS OF ACCOUNT.
- Ledger
- Cash book.
- Inventory
- Journal
Ledger.
- Main book used in keeping financial records.
- An account is a page or a section in the ledger given to a person/firm on which all business transactions relating to that person/ firm are entered.
- Account in ledger are divided into two parts drawn in letter T-shape.
- Name or heading for the account is written on the top line.
- The left hand side is debit (DR) side where all decreases (purchases and expenses) are recorded.
- The right hand side is credit (CR) where all increases (sales and receipts are recorded.).
Ledger account page.
| DAIRY CATTLE | |||||||
| DR | CR | ||||||
| DATE
2003 |
Particulars | Folio. | Amount.
Sh cts |
Date.
2003 |
Particulars. | Folio. | Amount.
Sh cts |
| Feb 20th | Bought two bags of dairy meal | 1 | 1800 00 | Feb 10th | Sold two heifers. | 1 | 1200 |
Use of columns.
- Date columns.
Date affecting the account is recorded on the column. It is entered immediately the transaction takes place.
It is divided into 2 sub-columns. The broader sub-column the month is written in words. The narrow sub-column date figure (date appears only once at the top of the date column).
- Particulars column.
Short description of the entry. It shows also the name of the account involved in the transaction being recorded.
iii. Folio column.
Page where a particular account appears in the ledger. Every page in the ledger is numbered.
The folio number of the account being credited should be entered in the folio column of the account being debited and vice versa.
Debit side. (DR)
- Date of the transaction in the date column.
- Item in the particulars side.
- Folio number of the item in the folio column.
- Amount of money involved in the amount column.
Credit side. (CR)
- Date of transaction in the date column.
- Cash at hand in the particulars column.
- Folio number at the cash in hand folio column.
- Amount received in the amount column.
In separate account, ledgers shows the amount the business owes other people or firms and vice versa.
Includes all records of all expenses that the farm ought to pay out and money generated by the farm.
AGRICULTURAL ECONOMICS(IV):FARM ACCOUNTS
Inventory.
Book in which a record of all assets owned by a business or an individual is kept.
Provide information used during valuation or drawing up balance sheet and profit and loss account. Values in inventory changes due to appreciation and depreciation of assets.
Types of inventories.
- Consumable goods inventory. Relates to consumable goods. Includes animal feeds, fertilisers, drugs and construction materials.
- Permanent goods inventory. Relates to permanent goods. Include tools and equipments, livestock.
Consumable goods inventory.
| Receipts. | Issues. | |||||
| Date. | item | Quantity. | Date. | Issued to | Quantity. | Balance in stock. |
| 7/7/03 | DAP fertiliser. | 20 (50 Kg bag |
|
|
|
20 bags
|
| 19/7/2003 | 21/7/03 | Gardener. | 3 bags | 17 bags. | ||
|
|
22/7/03 |
Gardener. |
12 bags. | 5 bags | ||
| 21/07/03 | DAP fertiliser. | 20
(50kg)bag |
|
|
|
25 bags.
|
|
28/7/2003
|
30/7/03 |
Gardener. |
8 bags.
|
17 bags. |
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Permanent goods inventory
| Livestock inventory 31,12,2003 | |||||||
| Class of stock | Number
at start of year |
Bought or received | born | Total | Sold or dead | No at end of year | Value in sh; ct |
| Dairy cattle | 8 | 6 | 2 | 16 | 2 | 14 | 140,000.00 |
| Sheep | 2 | 4 | 2 | 8 | 8 | 16,000.00 | |
| Poultry | 100 | 100 | 50 | 50 | 5,000.00 | ||
| Goat | 1 | 2 | 2 | 5 | 5 | 7,000.00 | |
| donkeys | 2 | 2 | 2 | 1,000.00 | |||
Tools and equipment inventory 31,12,2003
| Farm tools and equipment inventory 31.12.2003 | ||||
| Item number | Type of equipment | quantity | Value
Sh cts |
Remarks |
| 1 | Tractor(Massey
Ferguson) |
1 | 800,000 00 | Good condition. |
| 2 | Disc plough | 1 | 130,000 00 | Good condition. |
| 3 | Disc harrow | 1 | 120,000 00 | Good condition. |
| 4 | Forked jembes | 7 | 2,100 00 | Good condition. |
| 5 | Jembes | 6 | 1,200 00 | Good condition. |
AGRICULTURAL ECONOMICS(IV):FARM ACCOUNTS
Cash book
Book in which all transactions involving the receiving and paying out at cash are recorded.
Cash book is portion of the ledger, conveniently bound independently where receipts of money are recorded
Consists of sales and receipts side and purchase and expenditure. (Balanced at the end of the month)
Has the following columns;
- Date of payment
- Receipt number
- Person/firm from where money is received v Total amount received
| SALES AND RECEIPTS 2003 | PURCHASE AND EXPENDITURE 2003 | ||||||
| Date. | Particulars. | Sh. | Ct. | Date. | Particulars. | Sh. | Ct. |
| Feb 1
Feb 3
Feb 29 |
To sale of 2 bag of kale To sale of 5 trays of eggs
To sale of 10 kg carrot To sale of 1 bag spinach To sale of 20kg onions To sale of 10 chicken
|
1000
750
12,000
1200
45
2,500
7,100 |
00
00
00
00
00
00 |
Feb 2
Feb 4
Feb 24
|
By purchase of 5 jembes By purchase of 2 slashers By purchase of 1 rake By purchase of cabbage seeds By purchase of 5 kg DSP
fertiliser
Balance carried down
|
1000
150
75
200
200
1625 5,475
7,100 |
00
00
00
00
00
00 00
00 |
Journals
Book where all unclassified transactions are entered.
Information recorded in a journal.
- Purchase on credit of a capital equipment i.e. things bought to keep and use and not for resale
- The sale on credit of capital equipment
- Rectification of errors. Errors are made in other books, new entries, correcting or cancelling the old entries are made in the journal
- Transfers from one account to another in the ledger.
- Information on purchase, sales, returns, stocks and others in the journal posted in the ledger and used to draw the trading account.
- Information on depreciation is transferred from the journal to profit and loss account. The entries are referred to as closing entries.
- Opening entries in new books, when new books have to be opened, the balance from the old books must be entered into new ones.
The journal entries here are referred to as opening entries
AGRICULTURAL ECONOMICS(IV):FARM ACCOUNTS
Details recorded in the journal
- Date
- Name of the account to be debited
- Name of account to be credited
- Amount of money involved
- Brief description of the transaction
Format of a journal
| Date
|
Particulars | Folio | Dr amount
Sh ct |
Cr amount
Sh ct |
| 2003 | A/C to be debited A/C to be credited Brief description The transaction |
NB; account to be debited appears first in the journal
Folio column should be entered when the transactions posted to the ledger thus;
Showing the folio number to which the entry is posted
Indicating the entry has been posted to avoid reposting
The use of DR and CR should be posted
Description of the transaction (narration) reference is made to the voucher or supporting audience
Amount in DR column and CR column must balance
Journal entries
| DR | CR | |||
| Date. | Particulars. | Folio. | Amount
Sh ct |
Amount
Sh ct |
| 2003 | Cash A/C | 2 | 16,000
00 |
|
| Bought 2 heifers | ||||
| (dairy animal a/c) | 1 | 16,000 00 | ||
| Sold milk(milk
A/C) |
3 | 2,000 | ||
| Bank A/C | 4 | 2,000 00 | ||
| Cash A/C | 2 | 2,800 | ||
| Bought 2 goats | ||||
| Goats A/C | 5 | 2,800 00 |
Subsidiary books of the journal
Purchase book/creditors account
All details of items bought on credit are entered here
Creditor-someone or a firm to where the firm owes money
Sales book-debtors account
Debtor –firm/person who/which owes money to the firm
It’s a record of all debtors to the farm
Financial statement
Main purpose of keeping farm records and account is to determine the profit made in a given year or the net farm income and evaluate properties of the farm and liabilities.
AGRICULTURAL ECONOMICS(IV):FARM ACCOUNTS
Balance sheet
Financial statement drawn to show the financial position of a farm business at a particular period of the year.
It is drawn at the end of the accounting period or financial year.
Opening balance sheet.
Drawn at the beginning of the accounting period.
Closing balance sheet.
Drawn at the end of the accounting period.
Balance sheet has two sides.
LHS shows liabilities.
RHS shows assets.
Liabilities.
All the debts the farmer/business owes others. E.g.
- Loans and mortgages.
- Bank overdrafts.
- Debts payable for goods and services received.
- Services to which other people have paid to the business in advance.
Current liabilities.
Debts that must be cleared or repaid within a period of one year.
Include:
- Rent due.
- Electricity, water and telephone bills.
- Workers’ wages. v Bank overdraft.
- Debts payable.
Long term liabilities.
Debts whose repayment period is more than one year.
Example: long term loans.
Assets.
Properties owned by the business and have a monetary value attached to make.
Include:
- Cash at hand and in the bank.
- Valuation of all farm items e.g. stored produce, farm inputs, livestock, growing crops, farm building, machinery and equipments.
- Debts receivable for goods delivered and services rendered.
Current assets.
Those likely to be held for a short period of less than a year.
Include:
- Cash at hand and in the bank.
- Debts receivable.
- Farm produce to be sold.
- Inputs in store.
Fixed assets.
Property of a durable nature.
Include:
- Farm buildings.
- Perennial crops.
- Equipment and machinery.
Order of Assets in balance sheet.
Order of permanency. Begin with the least permanent.
Order of liquidity. Begin with the most liquid assets and permanent.
Order of liabilities in a balance sheet.
Permanency order. Capital appears first, followed by current liabilities and then long term liabilities.
Format of a balance sheet.
| Heading……………….
Balance sheet as at …………… |
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| Liabilities. | Sh | ct | Assets sh | Ct | |
| Current liabilities.
i. Short term debts. ii. Unpaid rents. iii. Unpaid wages. iv. Bank overdraft.
Long term liabilities. i. Bank loans. ii. Interest on loan.
Total liabilities. Net worth/capital/owners’ equity.
|
…… …… …… ……
…… ……
…… ……
|
…. …… …… ……
…… ……
…… …… |
Current assets.
i. Cash at hand. ii. Cash in the bank. iii. Debts receivable. iv. Stock in store. Fixed assets. i. Livestock. ii. Machinery. iii. Perennial crops. iv. Buildings. v. Land. Total assets.
|
…… …… ……
…… …… …… …… …… …… |
…… …… …… ……
…… …… …… …… …… …… |
| Total. | …… | …… | Total. | …… | …… |
AGRICULTURAL ECONOMICS(IV):FARM ACCOUNTS
Heading.
It shows the following details.
- Name of the person or business firm for whom the balance sheet is being drawn.
- Title of the statement. (Balance sheet)
- Date on which it is drawn preceded by the words ‘ as at’
Liability side.
It shows the following.
- Current liabilities (short term debts, bank overdraft, rent and wages).
- Long term liabilities (debts payable such as loans).
- Capital usually called owner’s equity or net worth.
Assets side.
It shows the following:
- Current assets g. cash at hand and bank, debts receivable, livestock, produce and inputs in store.
- Fixed assets e.g. machinery, equipments, motor vehicles, perennial crops, farm buildings and land.
Profit and loss account.
Financial statement showing whether the business made a profit or loss.
Income side.
It is the right hand side. Contains the following.
- Closing valuation. All assets in the farm/business by the end of the financial year. It gives the total value of the farm or business.
- Sales and receipts. Include all the produce or items sold from the farm/business and any debts receivable by the end of the financial year.
The expenditure side.
It is the left hand side and contains the following.
- Opening valuation. All assets in the firm/business by the beginning of a financial year. It gives the value of the farm at the start of a financial year. It is capital available for investment.
- Purchases and expenses. Includes items bought and debts payable to the firm/business for the financial year.
Format of a profit and loss account.
|
Title: profit and loss account of………………for the year ended………………..
|
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| Expenditure. Sh cts | Income. Sh cts | ||||
| Opening valuation
……………….. ……………….. Purchases and expenses. ……………… ……………… Total profit……………….
|
— —
— — — |
— —
— — — |
Sales and receipts.
……………………… …………………….. Closing valuation. ……………………. ………………………
|
— —
— — |
— —
— — |
| Total. | — | — | Total. | — | — |
NET PROFIT= (closing valuation+ sales and receipts) – (opening valuation +purchases and expenses.).
AGRICULTURAL ECONOMICS(IV):FARM ACCOUNTS
Cash analysis.
Financial statement drawn up to show the receipts and payment of cash in the business.
The entry of the receipts and payments of cash is as in the cash book except that analysis columns are included. It has two sides’ sales and receipts side and purchase and expenses side.
Each sale or purchase is entered twice once in the total column and once in the analysis column.
AGRICULTURAL ECONOMICS(IV):FARM ACCOUNTS
ALL AGRICULTURENOTES FORM 1-4 WITH TOPICAL QUESTIONS & ANSWERS
PRIMARY NOTES, SCHEMES OF WORK AND EXAMINATIONS