Traditionally agricultural managerial accountants have viewed cost accounting and financial reporting as two separate activities used to accomplish two distinct goals:
- Internal enterprise analysis and benchmarking using a "do-it-yourself" approach
- External financial statements for lenders and investors, either using double-entry accounting (often following GAAP) or adjusted accrual financial statements (AFRA, Finpack, etc.)
Most agricultural firms considering managerial accounting are primarily interested in the first of these goals, i.e., determining their "cost of production" for various products and locations. However, once production costs are calculated, they can also be used as the basis for inventories on financial statements.
Most accounting programs and financial statement generators have no trouble tracking liabilities and fixed assets, but maintaining inventories of raw materials, work in process and finished goods is much more problematic. As a result, various schemes have been devised to augment this process, from elaborate spreadsheets for estimating growing animal costs to relying only on market values.
- The outcome is that even the most sophisticated firms are using standardized, "plugged" inventory values on their financial statements which provide no feedback regarding internal cost variations.
- Results are even worse for smaller firms using market-value financial statements which have no tie-out whatsoever with their enterprise records.
Therefore, the perceived "state-of-the-art" for agricultural MIS requires three redundant information systems: financial, managerial (cost accounting) and production records. (See Figure 1.) Costs are developed at the "lowest common denominator" level (entity financial statement), then are either allocated back to cost accounting management segments or are never reconciled with internal cost accounting. Production records are treated as an unrelated activity.
Figure 1. Financial, cost accounting and production records treated as separate pocesses.
Through e.CLIPSE managerial accounting from FBS Systems, this process is reversed. Production records automatically "drive" raw material and overhead allocations to cost and profit centers and maintain inventory values. At the end of every accounting period, segment costs can be "rolled up" into entity financial statements. (See Figure 2.)
Figure 2. Cost roll-up from management segments into entity financial statements.
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