PORK$HOP at Amana on June 5th, "Best Practices" for Connecting Service and Support Centers, April Webinar Schedule, "Ancient" Invoices
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 FarmSMART                                                  March 2012 

In this Issue:

PORK$HOP at  Amana on June 5th

 "Best Practices" for Connecting Service and Support Centers

April Webinar Schedule

"Ancient" Invoices

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This month we're announcing the schedule for our 20th annualPORK$HOP seminar one day before the World Pork Expo. 

Learn how (and why) to connect your service centers to your support operations centers in our Best Practices column. 

Schedule your free webinar training for April. 

The Q&A column discusses alternatives for "ancient invoices."  

For more background on accounting and recordkeeping topics please visit our blog site


PORK$HOP Returns to Amana on June 5th 


PORK$HOP 2011 Overview


Mark Tuesday, June 5th, on your calendars for the 20th annualPORK$HOP Management Seminar co-sponsored by the Latta, Harris, Hanon & Penningroth CPA firm and FBS Systems.  Join pork producers and their advisors from across the nation as they network, interact with nationally-known speakers and study current cost of production benchmarks.  The conference will be held at the Clarion Inn at Amana Colonies, just 90 miles east of Des Moines, Iowa, home of the World Pork Expo.
Check your mail for an invitation and look for more details in the April edition of FarmSmart and the FBS Systems website.       

"Best Practices" for Connecting Service and Support Centers

Tractor center allocated to planting support operations.

Editor's noteThis article continues a new series on the "best practices" FBS users have developed to improve effectiveness, efficiency, internal control and compliance from their information system. 

Over the past two issues we've covered two levels of cost centers that accumulate indirect costs:

  • Service Centers (equipment, vehicles, employees, fuel expense, loans, etc.)
  • Support (Consolidating) Centers (facilities, crop operations, trucking, general farms, etc.)

How are these cost center types related and connected? 

When routine expenses are coded it's much easier to assign depreciation, repairs, payroll, interest directly to specifically-identified resources (service centers) than it is to split them between activities and processes (support centers) or directly to a crop or group of animals (production centers). 

Ultimately, though, service centers must be allocated to support centers to match the way these resources (and related costs) are used by these activities. 

FBS uses an annual percentage table to split out service centers between support centers. We rely on a full twelve month period because of the seasonal nature of farming combined with the "lumpy" distribution of costs (repairs and maintenance in off-season and active use in the Spring and Fall). 

Combine costs by quarter
Annual percentages are used because of "lumpy" distributions of cost throughout the year as with this combine center.

Percentages can be determined by one or more of these metrics:

  • Operating or tach hours for equipment
  • Labor hours for employees
  • Miles for trucks
  • Estimated fuel used per hour or acre for each operation
  • Arbitrary "guessitmates"
Tractor allocations
Tractor centers can be allocated between activities based on actual tach hours or even rough estimates.
Fuel allocations
Fuel centers can accumulate costs by product then allocate by percentage to activities (support operations).

 Note that these allocations are always charged against support centers, not directly to production centers because:

  • Significantly fewer tracking records are necessary (only "what was I doing?" not "where and when was I doing it?")
  • Rolling costs through the support (consolidating) centers allows you to monitor the cost of performing these operations as well as the total cost of production for your products.
  • Only minor adjustments in allocations are needed from year to year. 
Pickup allocations
Pickup truck center costs and allocations by quarter.

The process just described is an easy and accurate means of flowing period costs from basic resources to support centers so that you are prepared for the next step: Activity-Based Costing.

Free April Webinar Schedule 
Webinar Screen
Understanding A/P and A/R, April 2  
Crop and Field Records, April 9 
Cost Analysis, April 16 
Smart Feeder Reports, April 23 
LifeCycle Budgets, April 30 

All webinars run between 10:00 am and 11:00 am CST.  To register, e-mail support@fbssystems.com by 9:00 am CST on the day of the webinar. 

Q&A of the Month--"Ancient" Invoices 
Sarah Dixon
Sarah Dixon, FBS Technical Services Manager.

Q.   I have some Accounts Receivable invoices that are a couple of years old. What's the best way to handle them in FBS? 

A.  First, let's determine what should be included with accounts receivable (A/R)and accounts payable (A/P) based on generally accepted accounting principles (GAAP). A/Rs are considered current assets and A/Ps current liabilities--normally open only for 30-60 days. When these invoices get "long in the tooth," (i.e., 365 days old!) they no longer qualify as current assets or liabilities so they need to be either converted to notes receivable or payable or written off entirely. 

This issue comes up frequently with large FBS clients with multiple employees or business entities. In one scenario an employee or business partner may have fallen behind on payments to the farm entity. In another example one "captive" business entity intentionally delays payment to another entity or owner to manage tax liability or cash flow. Rarely is a formal promissory note created, instead these transactions remain classified as A/Rs and/or A/Ps and income or expense not "booked" until cash is received. 

In addition to non-standard financial reporting, treating these notes payable/receivable as accounts payable/receivable creates reporting challenges in FBS, since reports must "know" how many months back to search for the original invoices. That capability is controlled by an FBS preference called "Cash Look Back Months," which can be adjusted up to 72 months. Keep in mind, though, the further back in time a report searches, the longer it will take to run.

Cash Look Back Preference
Cash Look Back Months is set through Preferences.

Therefore, you have three alternatives for dealing with "ancient" invoices:

  1. If there's no intention or likelihood for them to be paid, write them off by reversing them, otherwise... 
  2. Leave them as-is and keep adjusting the look-back months until you hit the 72-month limit. The primary advantage of this approach is these accrued revenues or expenses won't be recognized until cash actually changes hands ("Date Cash Exchanged" switch = 2 or 3) so your financial records can stay on the cash basis
  3. Convert them to notes payable or receivable. The upside is more accurate financial statements; the downside is that cash revenue and expense will be immediately recognized 

To accomplish #1 or #3, run either the A/P or A/R Detail Report for the vendor, option 7, starting with the date when the invoice was issued. Running that report will tell you what has been paid against the invoice and what is still outstanding. Then make a corresponding A/P or A/R in an offsetting amount. So if you had an A/R for $5,000 to vendor ABC, you would make a new A/R to ABC for -$5,000 so that you can go in and receive payment for both invoices to net to $0. You have effectively reversed and written off the original invoice with a net effect of $0 to your cash income. 

To complete #3, make a new ledger account/center for the "loan" receivable or payable, and then make a journal entry into that new account for $5,000 offsetting the asset or liability with the original income or expense account. Your current period cash income will now be increased or decreased by the amount of the open invoice. 

Keep in mind that while we've just described "how" to handle these scenarios in FBS accounting, you should always consult with your accountant to determine "if" and "when" it's appropriate to put these into practice.


           FBS Systems
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