Chart Of Accounts

As we get close to the end of the year there is a lot of projects needing to be completed to finish off this year and ones to help us start off the year right. One important project we need to get done is to make sure our chart of accounts is set up for success.

In case you’re not sure what a chart of accounts is, it’s the list of accounts you use to allocate your expenses to throughout the year.

One note for everyone, if you are still doing your books manually you need to stop! It is very inefficient and does not allow you to properly evaluate your financial situation throughout the year. I know computers can be intimidating but most accounting programs have training available to teach you how to use the software. And if you really don’t want to deal with computers why not pay someone else to take care of the books for you. Its more time you can spend doing the things you enjoy. Just think back to all the hours you put in last year to get the books ready for the accountant. Just imagine what else you could have been doing during that time!

Now that we have you working with a computerized accounting program we need to set up your chart of accounts. You want to set them up so it is easy to track your expenses and that the numbers make sense. Since the ultimate goal is tracking Cost of Production I like to set up the accounts to help make calculating that easier.

You’ll want to start off with all your expense categories, fuel, feed, labor,repairs etc. I like to have sub categories set up under many of these expenses. The two I think are most important are fuel and repairs. For fuel I would like you to split out your fuel costs. Some of the sub categories would be hay/feed production, feeding, pickups and other. The reason I like to do this is to help see where that expense goes to. You can start evaluating your expenses more closely this way. You don’t have to start writing down the amount of litres you put in every vehicle but when you enter your expenses into the computer estimate how much goes in each category based off your best guess. Eg: during the summer a large portion of your fuel probably goes to feed production. When it comes to tax time it is still wrote off as fuel but you know better how it is allocated.

Another important category is machinery repairs. You want to have a separate expense column for each piece of machinery or implements. This allows you to track how much money you are putting into each for repairs. If your expenses in a year, on a single machine start getting too high you can compare those costs to the cost to buy or lease a new one.

Next we want to look at income. We want to break down the income into categories as well. Some of these categories could be weaned steer calves, weaned heifer calves or cull cows. This all depends on how your operation sells. Try to keep it as detailed as possible.

The last thing we will touch on is keeping your different farm ventures separate. If you do cow/calf, background and do grain, each enterprise should be easily distinguished in your books. You will need to do a separate cost of production for each so make sure you can easily allocate your expenses.

We just barely scratched the surface on this topic and could write an entire book on it. If you are needing help with this please contact us and we would love to help.