Archived
05-03-2008, 07:56 PM
Hello
I have many questions to ask related to QuickBooks used for farm accounting. I was really relieved and excited to find this discussion forum. I am using QuickBooks Premier Accountant 2004, and have a basic understanding of accounting.
My first question is as follows. How are perennial crops handled in accounting? The have a productive lifespan of 10-15 years. During the productive lifespan the are periods of differing productivity, such as, in the later stages they produce less. This seems like a situation for depreciation. Is it necessary to depreciate and appreciate perennial crops? Are they recored as items, fixed assets or other assets? What if one were to die prematurly? How is the loss recorded?
One more question. The ability of QuickBooks to record bartered or traded items. I have a so called seed bank which I want to account inventory and cash balance for my purchased, sold and traded seed entries. This has been explained to me once before, but I'm still fuzzy on the mechanics of using this feature. I have already set up the barter account. Is a barter item, a generic item that I choose from the items list every time I make a trade, then fill in the description in the notes column? I have already entered in all my current seed as inventory items with prices and quantities on hand etc.
Thank you
David
==========
> My first question is as follows. How are perennial crops handled in accounting?
This question has two slightly different answers, depending on whether you're talking about tax accounting or management accounting. I'm not an expert in tax accounting, so discuss those requirements with your CPA....or maybe someone else will add to this discussion.
As for management accounting, I agree that depreciating your initial investment in a perennial crop would be reasonable. The principle, of course, is to attempt to have your annual depreciation/depletion expense model how that initial investment is being "used up" by production. Since you say production will diminish in later years, a declining balance or sum-of-years-digits depreciation approach would make sense. A "depletion" system might also be appropriate. With depletion you write off the initial investment in proportion to what part of the crop is sold/produced during a given year--it's used for timber production, for instance.
> Are they recored as items, fixed assets or other assets?
They're fixed assets. But Items and fixed assets aren't mutually exclusive. You may, if you wish, assign an Item to each/any fixed asset just for the purposes of identifying it when you purchase/sell it. Multiple fixed asset Items may refer to the same fixed asset account. But using items is just for easy identification of assets in transactions. Recording depreciation expense doesn't need to involve the Item itself; it's just a journal entry involving the depreciation expense account and an Accumulated Deprecation subaccount of the fixed asset account.
Most people would just enter the perennial crop in one (or more) fixed asset account(s), and not bother with Items. As you may have guessed, QuickBooks doesn't provide much direct support for depreciation or fixed asset records...you're mostly on your own.
> What if one were to die prematurly? How is the loss recorded?
The answer depends on a lot of things. In a depletion system, you'd simply deduct an additional amount to represent the lost/dead item. But how/where to record it is a matter of specifics of the situation. If you had part of your perennial crop destroyed by a tornado, you might record it as an Other Expense so that it dropped out of the main part of your P&L to be identified as an "extraordinary expense"--something above and beyond your normal expenses. (From a management accounting standpoint you need to be able to estimate your cost of production both ways--with "normal" circumstances, and also including the "abnormal/extraordinary" circumstances. Normal expense levels are more meaningful for helping decide if you'll change any inputs or management strategeis for the coming production cycle.)
> One more question. The ability of QuickBooks to record bartered or traded items.
Have a look at the QuickBooks Help entry for "barter payments".
Mark Wilsdorf
Flagship Technologies, Inc.
http://www.goflagship.com
I have many questions to ask related to QuickBooks used for farm accounting. I was really relieved and excited to find this discussion forum. I am using QuickBooks Premier Accountant 2004, and have a basic understanding of accounting.
My first question is as follows. How are perennial crops handled in accounting? The have a productive lifespan of 10-15 years. During the productive lifespan the are periods of differing productivity, such as, in the later stages they produce less. This seems like a situation for depreciation. Is it necessary to depreciate and appreciate perennial crops? Are they recored as items, fixed assets or other assets? What if one were to die prematurly? How is the loss recorded?
One more question. The ability of QuickBooks to record bartered or traded items. I have a so called seed bank which I want to account inventory and cash balance for my purchased, sold and traded seed entries. This has been explained to me once before, but I'm still fuzzy on the mechanics of using this feature. I have already set up the barter account. Is a barter item, a generic item that I choose from the items list every time I make a trade, then fill in the description in the notes column? I have already entered in all my current seed as inventory items with prices and quantities on hand etc.
Thank you
David
==========
> My first question is as follows. How are perennial crops handled in accounting?
This question has two slightly different answers, depending on whether you're talking about tax accounting or management accounting. I'm not an expert in tax accounting, so discuss those requirements with your CPA....or maybe someone else will add to this discussion.
As for management accounting, I agree that depreciating your initial investment in a perennial crop would be reasonable. The principle, of course, is to attempt to have your annual depreciation/depletion expense model how that initial investment is being "used up" by production. Since you say production will diminish in later years, a declining balance or sum-of-years-digits depreciation approach would make sense. A "depletion" system might also be appropriate. With depletion you write off the initial investment in proportion to what part of the crop is sold/produced during a given year--it's used for timber production, for instance.
> Are they recored as items, fixed assets or other assets?
They're fixed assets. But Items and fixed assets aren't mutually exclusive. You may, if you wish, assign an Item to each/any fixed asset just for the purposes of identifying it when you purchase/sell it. Multiple fixed asset Items may refer to the same fixed asset account. But using items is just for easy identification of assets in transactions. Recording depreciation expense doesn't need to involve the Item itself; it's just a journal entry involving the depreciation expense account and an Accumulated Deprecation subaccount of the fixed asset account.
Most people would just enter the perennial crop in one (or more) fixed asset account(s), and not bother with Items. As you may have guessed, QuickBooks doesn't provide much direct support for depreciation or fixed asset records...you're mostly on your own.
> What if one were to die prematurly? How is the loss recorded?
The answer depends on a lot of things. In a depletion system, you'd simply deduct an additional amount to represent the lost/dead item. But how/where to record it is a matter of specifics of the situation. If you had part of your perennial crop destroyed by a tornado, you might record it as an Other Expense so that it dropped out of the main part of your P&L to be identified as an "extraordinary expense"--something above and beyond your normal expenses. (From a management accounting standpoint you need to be able to estimate your cost of production both ways--with "normal" circumstances, and also including the "abnormal/extraordinary" circumstances. Normal expense levels are more meaningful for helping decide if you'll change any inputs or management strategeis for the coming production cycle.)
> One more question. The ability of QuickBooks to record bartered or traded items.
Have a look at the QuickBooks Help entry for "barter payments".
Mark Wilsdorf
Flagship Technologies, Inc.
http://www.goflagship.com