Getting a year of farm bookkeeping ready for the accountant

If your records for the year are a pile of receipts, a bank login and a half-finished spreadsheet, you are not alone. Most farms and ranches get busy and the books fall behind. The good news is that a year of messy records can be put in order in a few focused sittings, and an accountant will spend less of your money if you hand over something clean.

This article is about organizing records, not about taxes. What is deductible, how to report it and how to plan are questions for your accountant or tax preparer. Our goal here is to give them something they can work with.

Start by finding out what your accountant wants

Before you do anything, ask. Some accountants want a spreadsheet of income and expenses by category. Others want bank statements and a year-end file from the bookkeeping program you use. Ask which format they prefer, which categories they use for your operation and when they need it. Doing it their way the first time saves a second round.

Step 1: Gather everything in one place

Make a folder for the year, on a computer or a physical one, and collect:

• Statements for every bank account, including savings and any account used for the farm.
• Statements for every credit card and any card or account that was used for farm purchases.
• Loan statements, including year-end balances and interest paid.
• Sales records: settlement sheets, scale tickets, sale barn receipts, invoices and market records.
• Payroll records, if you have employees.
• Receipts for large purchases such as equipment, buildings and breeding stock.
• Records of anything you sold, such as equipment or animals.
• Last year's tax return and year-end records, if you have them.

Make a list of what is missing. Statements can usually be downloaded again from your bank, so do not worry if you cannot find one.

Step 2: Separate farm from personal

This is the biggest cleanup task for most small operations. If the farm and household share an account or card, go through each statement and mark each line as farm, personal or unsure. If the answer is unsure, write a note and ask your accountant. Do not guess.

Going forward, a separate account and card for the farm make this far easier. For this year's cleanup, do the best you can and flag questions.

Step 3: Pick categories and stay consistent

A short list of categories that fits your operation works better than a long one. For a typical farm, a list might include:

• Seed and plants
• Fertilizer and chemicals
• Feed
• Veterinary and medicine
• Fuel
• Repairs and maintenance
• Hired labor
• Rent and leases
• Utilities
• Insurance
• Interest
• Supplies
• Freight and trucking
• Custom hire
• Equipment purchases
• Other, with a short note

Ask your accountant whether they want any in particular. The key is consistency. Pick a name for a type of expense and use it all year, so the same purchase is not filed in three places.

Step 4: Record each transaction

Go through the statements in date order and enter each line with the date, who was paid or who paid you, the amount and the category. If you have a bookkeeping program, import the bank data and then review and fix the categories. If you use a spreadsheet, columns for date, payee, description, category, amount and a notes field are enough.

Work one account at a time. That way, you can check your total against the statement's ending balance when you finish.

Step 5: Treat deposits and transfers carefully

Not every deposit is income, and not every payment is an expense. Look out for:

• Transfers between your own accounts. These are neither income nor expense.
• Loan proceeds and loan payments. Money you borrowed is not income. The payment has an interest part and a principal part, and the lender's year-end statement shows the split.
• Credit card payments. Record the purchases on the card, not the payment itself, to avoid counting things twice.
• Owner draws and personal spending. Mark them as personal.
• Sales deposits. Match them to a settlement sheet or invoice when you can, since a deposit may be net of deductions.

Step 6: Reconcile

For each bank account and card, check that your records, starting from the beginning balance and adding and subtracting each item, end at the same balance as the final statement. If they do not match, the difference is almost always a missing transaction, a duplicate, or a typo. Look for an amount that equals the difference and for a transaction that appears twice. Reconciling is dull and it is the single best check that your records are right.

Step 7: Write down what you do not know

Make a list for the accountant of items you could not sort out: a large unexplained deposit, a purchase you are not sure how to describe, a payment to a person you do not remember. Short, specific questions get quick answers.

What to fix and what to keep

Fix:

• Items filed under the wrong category.
• Duplicate entries.
• Transfers recorded as income or expense.
• Missing transactions that show up during reconciliation.
• Farm and personal items that are mixed together.

Keep:

• Bank and card statements.
• Receipts and invoices, particularly for large purchases.
• Sales records and settlement sheets.
• Loan statements and year-end interest information.
• Payroll records.
• Your category list and any notes about how you handled unusual items.

How long you must keep records is a question for your accountant, who can tell you what applies to you. Until you ask, keep them.

Hand-off: what the accountant should receive

1. A transaction list or exported file for the year, organized by category.
2. Totals by category.
3. A reconciliation showing each account ties to its statements.
4. Copies of loan statements.
5. Sales summaries.
6. A short list of questions and unknowns.
7. Copies of large-purchase documents.

Where we fit in

If the year is further behind than you want to tackle, Fieldwork Drafting offers bookkeeping cleanup: we organize and categorize your records from the statements and files you send, reconcile them, and return a clean set with a list of open questions. You get a fixed quote and the finished work by email. We do not give tax or accounting advice, and our work is not an audit, review or tax return. Your accountant makes those calls.