One of the key factors that distinguish commercial farming from peasant farming is the deliberate effort by the farm operator to maintain records and accounts of farm operations. It is an undeniable fact that the backbone of any business organization aiming to maximize profits is a well-organized system of record-keeping and accounting.
The need to keep records and accounts of farm business activities becomes increasingly necessary as agriculture transitions from subsistence to market-oriented production under peasant farming. In subsistence farming, the need to keep records and accounts rarely arises because farm production activities are primarily geared towards meeting the subsistence needs of the farm family, which typically supplies the bulk of the factors of production employed on the farm.
However, under commercial agriculture, the need to maintain written records and accounts becomes clearly evident. Farm business operations are undertaken with the motive to maximize profit by utilizing a wide variety of resources traded in the market.
Since the farm operator must deal with large volumes of financial transactions, relying on memory for keeping farm records and accounts is impractical. For effective planning and decision-making, written records and accounts of all business activities on the farm must be maintained.
Read Also: Chinchilla Endangered Rodent
Importance of Keeping Farm Records
1. Farm Management Decision-Making
Farm management is often faced with critical decisions such as: What to produce? When and how much to produce? What combination of inputs to use? For whom to produce? In making these decisions, farm records and accounts, when maintained over time, serve as a useful guide for the farmer.
They help determine the contribution of each enterprise to farm income and reveal areas of relative advantage. Additionally, farm records allow the farmer to measure efficiency in using resources such as land, labor, and capital for producing agricultural products for sale. They also enable the farmer to identify issues early and address them before they result in significant losses.
Farm records and accounts are also invaluable for planning the organization or reorganization of farm enterprises in advance. Examining farm records and accounts over several years provides a basis for formulating future plans, such as budgeting.
Due to variations in management abilities, climatic conditions, soil types, labor availability, and credit access across different farms, data generated from a specific farm is far more reliable than local averages for such planning.
2. Performance Evaluation
Farm records and accounts provide a historical account of farm activities over time, enabling the farmer to assess progress. By comparing records and accounts from different years, a farmer can determine whether yields and profits are increasing or decreasing.
Furthermore, the farmer can compare achievements in terms of yields and profits with planned targets and with similar farms in the neighborhood. Such comparisons help identify potential weaknesses and strategies to overcome them.
Farm records and accounts also allow the farmer to understand the farm’s financial position at any given time. Knowledge of liabilities relative to potential returns is crucial to avoid financial loss or bankruptcy. By showing the farmer how much is being earned, these records enable adjustments to personal expenditures based on farm income.
3. Credit Purposes
Accurate farm record-keeping and accounting provide a critical basis for granting credit by financial institutions worldwide. According to the American Bankers Association (1965), bankers rely on records of a borrower’s business to compare past performance against regional standards. Properly maintained records also serve as a basis for projecting and evaluating future profitability and loan repayment capacity.
A farmer who maintains accurate records and accounts is more likely to secure a loan for business expansion compared to one with only a vague understanding of the farm’s economic situation. Conversely, the lack of accurate records makes it difficult for banks to extend credit to small farmers.
Extending credit to a farmer without records is a disservice, as it may lead to debt obligations without a corresponding increase in income to repay the loan, leaving the lending institution with recovery challenges.
4. Taxation and Insurance Purposes
One of the civic responsibilities of a farmer is the payment of taxes, which are a source of government revenue. Additionally, farm insurance policies require farmers to pay premiums to insurance companies in exchange for coverage against potential losses.
However, the lack of reliable records and accounts hampers accurate assessments of a farmer’s annual net income. As a result, some farmers may pay more taxes than they owe, while others pay less.
Provision of National Agricultural and Economic Planning Data
Adequate and reliable data are essential for agricultural and overall economic planning in any economy. Farm records and accounts provide the necessary data for meaningful and attainable agricultural plans at local, state, and national levels.
For example, budgetary allocations for farm inputs such as machinery and fertilizers require knowledge of demand for these inputs. Accurate data on the number of farmers, farm income levels, machinery hours employed, fertilizer quantities used, and hectares under different crops are essential.
The lack of adequate and accurate farm records and accounts has made it challenging for Nigeria to formulate workable agricultural and economic plans.
Farm records and accounts are also useful in other areas, such as making leases or sales, assessing compensation, and settling estates after a farmer’s death. Well-maintained records provide valuable assistance in determining the value of the business and compensation payable.
Read Also: Powdery Scab (Potatoes): Description, Damages Caused, Control and Preventive Measures
Types of Farm Records
Farm records and accounts can be categorized in various ways, depending on the type of information the farmer wishes to maintain. For this article, five types of records will be discussed:
- Inventory Records
- Production Records
- Farm Receipts Records
- Payroll/Labour Records
- Farm Operation Records
1. Inventory Records
An inventory refers to the complete count and evaluation of all assets and liabilities on the farm at a specified date. “Assets” include all materials, goods, and services owned by the farmer and used in production, while “liabilities” refer to goods and services owed to others. Inventory records are important for several reasons.
Firstly, they show the net worth of the farm at a specific time and the stocks on hand, such as feeds and medicines. Secondly, they record expenses due to depreciation.
Taking an inventory involves two steps: a physical count and evaluation. The physical count includes listing assets and liabilities, such as land, buildings, machinery, supplies, and crops. Livestock should also be counted, noting type, age, sex, number, and weight.
The second step is the valuation of these assets and liabilities using appropriate methods. Inventory records are typically taken at the beginning and end of the year, using the same pricing method to account for real changes.
Inventory records are useful for preparing farm income statements, trading accounts, and balance sheets. Assets can be classified into fixed, working, and current assets, while liabilities are classified into long-term, medium-term, and current liabilities.
2. Production Records
Production records document both crop and livestock outputs, along with the corresponding quantities of inputs used. Examples include records of land area under different crops, quantities of inputs used, and outputs harvested. Livestock records should include the number, age, weight, mortality rates, and feed quantities for various types of livestock.
3. Farm Receipts Records
A profit-oriented farmer should obtain receipts for all items purchased and issue receipts for all items sold. Proper documentation of accounts payable and receivable is essential for maintaining an accurate picture of farm expenditures and income at the end of the year. The value of farm produce consumed by the household or given as gifts should also be included as part of farm income, using relevant market prices for valuation.
4. Payroll/Labour Records
Payroll records should include information such as worker categories, dates, work done, days worked, wage rates, and payments in kind. Contributions of family labor should also be documented, including the number, sex, and days worked by household members. The monetary value of family labor can be estimated by converting work done by non-adult and female members to adult equivalents and multiplying by the current wage rate.
5. Farm Operation Records
Records should be maintained for major farm operations such as land clearing, planting, weeding, fertilizer application, and harvesting. These records should document the number of man-days or machinery hours employed, dates of operations, and types of labor and machinery used.
Do you have any questions, suggestions, or contributions? If so, please feel free to use the comment box below to share your thoughts. We also encourage you to kindly share this information with others who might benefit from it. Since we can’t reach everyone at once, we truly appreciate your help in spreading the word. Thank you so much for your support and for sharing!
Read Also: How to Start an Urban Farm
