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Suggested Topic Activity.
1.
Name and distinguish the various books of accounts a farmer can keep in a dairy farm.
2. Visit the schools account office and find out the financial documents the school keeps.
3. Students to prepare a sample balance sheet for an imaginary farm and note down the main parts of a balance sheet.
4. Prepare cash analysis from the information given below filling all the columns in the table.

Ref .macmillan, sec.Agric. bk 4 ,pg 132-133. Fig 5.11.

Background Information

Let us review what you learned earlier about agricultural economics . In form one you learned the meaning of agricultural economics and the basic concepts of economics such as opportunity cost, choice and preference. You also studied farm records and Importance of keeping farm records. In this topic you will learn the basic principles farm of accounting.








Glossary
1.Farm Acconts - records or statements of financial transactions of the farm.
2.Invoice-Document used in business when goods are delivererd on credit.
3.Receipt-Document issued when cash payments for goods delivered or services rendered is made.
4.Delivery note-Document that accompanies goods on delivery.
5.Purchase Order-A contract document between a buyer and the seller to supply specified goods.
6.Ledger-Main book used in keeping financial records.
7.Inventory-Abook in which a record of all the assets owned by a business or individual is kept.
8.Cash book-A book in which all transactions involving the receiving and paying out of cash are recorded.
9.Journal-A book where all unclassified transactions are entered.
10.Balanec sheet-Financial statement drawn to show the financial position of the farm business at a particular period of the year.
11.Liabilities-Consists of what a farming enterprise owes for goods supplied,or all debts the business owes other firms.
12.Assets-Are property owned by a business and have a monetary value attached to them.
13.Profit and loss account-A financial statement showing whether a business made a profit or loss.
14.Opening valuation-These include all assets in the firm or business by the beginning of a financial year.
15.Closing valuation-This includes all the assets in the farm or business by the end of the financial year.
16.Cash analysis-Is a financial statement drawn up to show the receipts and payments of cash in the business.

Topic Objectives:

By the end this topic, you should be able to;

  • state the importance of farm accounts,
  • distinguish and describe the various financial documents and their uses,
  • prepare and analyze financial statements,
  • identify various books of account and their uses.

Agricultural Economics IV (Farm Accounts)

Introduction:

Meaning of agricultural economics, Agricultural economics is the study of how the society employs the scarce resources to production of goods and services for use by the society over a period of time. Farm accounts are written farm records of all the financial transactions in the farm which evaluate its performances

Farm Records Kulipa ushuru ni Kujitegemea

Financial Documents:

A financial document is a record in form of written piece of paper or electronic form of record giving information of expenses, assets or monetary status of a firm. They include the following;invoice, delivery note, invoice, statement of account and purchase order.


Invoice:

An invoice is a financial document used when goods are delivered on credit. It is used to inform the buyer of the goods delivered on credit. An invoice contains several types of information for example Particulars column, quantity column, name of the seller, name of the buyer, price per unit column and amount column. In addition it also provide discount if any terms of payment and payment period.


Receipt:

A receipt is issued when payment of goods delivered or services rendered are made. It shows that payment has been made.

Delivery note:

Delivery note is a financial document written by a seller that accompanies good goods on delivery. It helps the buyer to check if all goods have been delivered. The delivery note shows that goods have been physically delivered from the buyer .


Purchase order

Purchase order is a financial document written by a buyer when requesting a business firm to supply specified goods.

Statement of account:

Statement of account is a financial document send by a seller to a buyer who has bought goods on credit over a period of time (specified trading period). It is a reminder to inform the buyer how much he owes the seller.


Books of Accounts.

These are books into which information on various business transactions are recorded over a long period of time, they are also called financial books. The financial books used in the farm include;

  • Cash book,
  • Inventory book,
  • The ledger,
  • Journal.

Cash book.

A cash book is a book where transactions involving the receiving and paying out of cash are recorded.


Cash book Layout

A cash book is divided into to two main sides namely; sales and receipts side and purchase and expenditure side. Each side of a cash book has the following columns. Date column: when the transaction was made. Particulars column, which describes the transaction being carried out specifying the items sold or purchased. Amounts column, which indicate the total money paid or received in each transaction. On the sales and receipts side, purchase and expenses must balance by carrying down the balance either from the sales and receipts side or purchase and expenditure side .


Inventory book

Inventoryis the financial book where all the assets owned by the farm business or an individual are entered. Inventories are drawn at the end o f an accounting period. The inventory records are divided into two; consumable inventory and permanent inventory.consumable goods include fertilizers, seeds, feeds e.t.c.where as permanent goods include,farm tools machinery among others.


The ledger.

This is the principle book used in keeping financial records. it contains all the details of all items in the business owed by a farmer .it has two sides, the debit and the credit side.


Both the sides have the following details


Date: this shows the date in which transaction took place. Particulars column: is a short description of the cause of entry and name of other accounts affected by the same transaction. Amount: the amount of money by which the account is increased or decreased. 1. Ledger is the main book used in keeping financial records. 2. It is in the ledger where all accounts are kept. 3. A ledger is a book in which a record of all assets owned by a business are kept. 4. A ledger account has credit side and a debit side. 5. A ledger book is where are all un classified transaction are kept are entered 6. A ledger has a folio page where particular accounts appears 7. A particular column in a ledger is used for writing the cause of the entry being made.

Journal

Journal is a book of account of original entry where all transaction of are recorded from day to day. Journal contains all unclassified transactions, it is also called the book of prime entry (transaction are made prior to their entry in the ledger).

A journal has the following details;

Date of transaction. Shows the date in which the transaction took place. Name of the account to be debited: shows a decrease transaction. Name of the account to be credited: shows an increase transaction. Transaction particulars: brief description of the cause of entry. Amount of money involved: money by which an account is increased or decreased.

Financial Statements

These are statements which show various financial transactions on the farm. They include the following; balance sheet, profit and loss account and cash analysis.

Balance sheet.

It is a statement that shows assets and liabilities of an enterprise at a specific period of time. It shows farms financial position as at that date. It has two sides; the right hand side where assets are recorded and left hand side where liabilities are recorded.

Assets

Assets are productive resources with monetary value attached to them. they include machinery, buildings, raw materials.There are are two types of assets; Fixed assets- are resources that are durable in nature such as a tractor, farm house, dairy cows grazing, and coffee plantation.Current assets- are those assets that are held for a short time to time. Examples of current assets are output of maize, tomatoes, and potatoes.

Liabilities

This are debts the farmer or the business owes other firms. There are two types of liabilities:

  • long time liabilities- are those debts payable for a long period of time eg 5yrs.
  • short time liabilities- are those debts payable within a year.

Profit and Loss account:

Profit and Loss account is a financial document prepared at the end of an accounting period to show whether a farming business made a profit or loss.it has two sides; income side (on the right hand side) and the expenditure side( on the left hand side).


  • Purchases and expenses: the cost incurred when buying goods and services
  • Sales and receipts: the money received after selling good and services.
  • Opening valuation: opening valuation: the value of the business at the beginning of a financial year.
  • Closing valuation: Closing valuation: the value of the business at the end of a financial year.

Cash Analysis

Financial statement drawn up to show the receipts and payment of a farm. it records the total income and the total expenditure of several enterprises on the farm e.g dairy , maize, poultry. It has two sides the sales and the receipts (on the left side) and purchases and expenses (on the right side). The analysis of each enterprise are recorded in both sides.

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