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Integrating Ag Technology Data with Financial and Managerial Accounting

Posted by Norman Brown

Jan 11, 2019 4:37:51 PM

The following is a summary of a presentation entitled "Financial and Management Accounting Software--Developments, Implementation Challenges, and Integration Issues" made in July 2018  to the Farm Financial Standards Council Annual Conference in Champaign, Illinois.

Over the next few blog posts we’ll attempt to answer these questions:

  • What do we do that’s unique?
  • Who do we work for?
  • What are the current technical tools of the trade?
  • How we can support and leverage the Standards?
  • What are the challenges to adoption?
  • What are the opportunities for agricultural producers?

What We Do That’s Unique

FBS's mission statement is Integrated Information Systems (what we do) for Agriculture’s Top Managers (who we work for).

Let’s begin with who we “work for.”  FBS users are among the most progressive, demanding and complex farming operations in North America.  You'll find examples of them nearly every month in the "FBS Users In the News" stories.  These operations are managing diverse enterprises, and all are constantly growing in scale and accounting sophistication. Many are nationally-recognized leaders in their fields and some have be selected for awards such as Farm Journal Top Producer of the Year.

What’s the big deal about integration?

If you’re like many growing, progressive producers your scale and complexity are working against you because this vital information is housed in separate “silos” consisting of unconnected accounting and production software supplemented by countless spreadsheets.

These information silos exist to accomplish specific information goals:

  • Cash accounting for taxes.
  • Accrual accounting to accurately measure true profitability.
  • Production records for insurance compliance and to evaluate best management practices.
  • Inventory control to verify what’s available to sell and what’s been used.
  • Cost/management accounting to determine your farm’s internal costs and margins.
  • Budgeting to financially project your operation into the future.
  • Benchmarking to standardize and compare your performance  with industry leaders.
  • And ownership accounting to automate and consolidate your complex business relationships.

Although each of these information silos share the same source data they appear to be incompatible in their timing and precision.  For example:

  • Cash and accrual accounting rely on different transactions in the same time period

  • Crop and livestock production cycles rarely correspond to calendar years.

  • Financial accrual adjustments don't tie out to field and group production/management level detail.

    Next time we’ll look at the current “technical tools of the trade” that address these problems.  Meanwhile we invite you to watch our introductory "Farm Software Success Through FBS" video

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Topics: farm management accounting, agricultural managerial accounting, cash or accrual, farm financial standards council, integrated farm software

Growth Path Accounting: Part 5

Posted by Norman Brown

Nov 10, 2016 1:38:58 PM


In prior installments in this series, we covered the two key questions in the Growth Path Accounting Decision Tree.  Now we continue tracing the accounting results from these decisions.
 If your current accounting method is strictly  accrual, you're using professional accounting oversight and you're not concerned with real-time inventories and/or managerial (cost accounting you've already selected  Accounting Method A (Accrual Focus).  

What Does Method A look like?
1. No integration with production information.   If you're tracking field or livestock performance records, they'll be isolated in separate, unconnected databases (or sheets of paper).

2. Limited cash accounting.  Producing a cash-basis Schedule F tax return will likely require meticulous external adjustments.

3. Partial inventory tracking.   Even if your accounting system includes an inventory module it's likely not easily adaptable to the detail and dynamics of agricultural inventories so you probably will also rely on separate forms or spreadsheets.

4. "Mainstream" GAAP accounting that reliably reports historical financial activity at the expense of farm management detail.  
What are the benefits of Method A?

1. Can produce accrual financial statements that accurately compute profitability.

2. Anyone with an accounting background can understand the reports.

3. Will work with an "off-the-shelf" accounting program rather than more expensive and specialized ag accounting software. 

4. Doesn't require that your controller or bookkeeper understand agriculture 

What are the downsides of Method A?

1. Hard to monitor cash tax position because of the timing differences in cash and accrual transactions.

2. No unit cost analysis by commodity, crop year, farm, field or group.

3. Restricted accounting control because of the challenges of inventory control or reconciliation.

4. Requires formal accounting training to maintain.

Many larger farmers choose Method A strictly on the advice of their CPA, controller or CFO because it's what these professionals are already comfortable with. 

Method A, while highly-sophisticated, may not take you to your ultimate destination.  Be prepared to follow the Growth Path we'll describe in upcoming articles.

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Topics: growth path accounting, cash or accrual

Growth Path Accounting: Part 4

Posted by Norman Brown

Nov 3, 2016 10:55:38 AM


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Topics: growth path accounting, cash or accrual

Growth Path Accounting: Part 3

Posted by Norman Brown

Oct 27, 2016 9:10:12 AM


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Topics: growth path accounting, cash or accrual

Growth Path Accounting: Part 2

Posted by Norman Brown

Oct 21, 2016 12:03:32 PM

Last week our blog on Growth Path Accounting presented theStep One question, "Where are you now?" in regard to accountingmethod (cash or accrual) and accounting oversight (family or professional). 

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Topics: growth path accounting, cash or accrual

Growth Path Accounting: Part 1

Posted by Norman Brown

Oct 13, 2016 4:15:26 PM

Surveys of farm computer users reveal that they believe that accounting is their computer's most important function.  Unfortunately, selection of the right farm accounting system has been a hit-and-miss exercise. Growth Path Accounting provides the farm manager with step-by-step procedures for selecting and maintaining his accounting system.

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Topics: growth path accounting, cash or accrual

Accounting Method Cost and Returns

Posted by Norman Brown

Oct 3, 2016 12:52:26 PM

Accounting Methods A (Accrual), B (Hybrid), C (Cash) and ABC (Integrated Cash, Accrual and Managerial).  We learned that most farmers "default" to Method C because of its ease of use while larger firms choose Method A because of its wide acceptance by accounting professionals.  However, when we plot management value against effort expended we gain a new perspective.

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Topics: cash or accrual

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