We will be examining the changes you need to make in handling Agricultural inventories as you move from traditional agriculture financial reporting to more up to date statements that follow Generally Accepted Accounting Principles.

Over the past two articles we've contrasted the ways farmers produce financial statements and the conflicting goals of maintaining simultaneous farm financial records by cash and accrual.

The conflict is created by these realities:

    •      Because the IRS allows it, most farmers file cash-basis tax returns.
    •      As a result, the cash-basis 1040 Schedule F intentionally distorts true farm earnings.
    •      Few farmers have the training or incentive to prepare accrual financial statements.

Therefore an "adjusted accrual" system (Coordinated Financial Statements) was developed by Tom Frey and Danny Klinefelter at the University of Illinois in the late 70s.  Further refined and re-dubbed "Agricultural Financial Reporting and Analysis" (AFRA), this methodology is the heart of the process adopted by the Farm Financial Standards Council.

We began a series on farm financial reporting in agriculture by looking at three general ways farmers produce financial statements (cash-basis accounting / "black box" analysis, cash-basis accounting/"user-supplied" data and accrual/managerial accounting). Before moving into more depth with the agricultural financial reporting process, let's examine all the reporting requirements that operations sooner or later encounter. In fact, we've identified eight coexisting, and often conflicting information goals in farm records: