FARMERS’ FINANCE

Nelson Evening Mail, Volume 76, 29 July 1941, Page 3

FARMERS’ FINANCE

BOOKKEEPING ADVANT AGE S SU M MARIS L D In the May issue of Progress and Fanning First" there appeared an extraordinary article on the subject of ac counting for farmers, comments "The I Accountants' Journal” editorially. The author asks this staggering question : I Is it worth while for the average i farmer to adopt double-entry bookkeep- | ing (including a balance sheet for the i purpose of obtaining each year depre- , ciation allowance on plant and motor; vehicles w hen making tax returns? " , After explaining that unless the Corn- ( missioner of Taxes is provided w ith a \ balance sheet prepared by double-entry. I annual depreciation on plant and mo- I tor vehicles is not allowed, the writer points out that the only advantage is i that by providing a balance sheet a j farmer is able to anticipate the charge : for depreciation and get some of it each year. But he naively states: "The total i allowance made to him will not in any event exceed the amount he must obtain in the end when his plant or mo- j tors arc in some way disposed of." Outlining the position that 20 per cent, on the diminishing value is now ( allowed on cars by the Commissioner ns : against 10 per cent, formerly on the 1 original value the author shows that at the end of ten years the farmer is approximately £32 worse off in the way of depreciation allowance than he would have been with the old rate. He i then adds: ‘‘To obtain the greatest al- j lowanee from depreciation under the . new rate a farmer would need to trade in his car every two or three years, and I without double-entry he would not need j to wait, so long then for his deprecia- * tion allowance." However, lie does re- : mark that with certain long-wearing j types of plant, the farmer would have a long wait—as for example, ploughs., harrows or Cambridge rollers. Summing up his views the w riter j makes this remarkable pronouncement I (the italics are ours) : "The position in a nutshell is that double-entry becomes worth the extra j expense (for tax purposes) for aj farmer as soon as his plant, equip- ; merit and motor vehicles exceed a certain value ; but short of that, the i main benefit would be to the account-j ant paid to do the extra work." , In suggesting that we comment on, this article a member of the Society i who has extensive experience in the 1 preparation of farming accounts, points j out that dining the period of the mortgage adjustment legislation, it was apoarent that a very real factor in the unsatisfactory financial position of many farmers was their ignorance of their true position. It is not too much to assert, he states, that if more farmers understood that their operations called for accounts m the same way as any other enterprise a great number of farming failures would be avoided. NOT UNDERSTOOD The term double-entry" unfortunate- j :y is not even fully understood by j traders and other business men. let ! alone farmers. Single entry i* not a 1 system of accounts at all because it is j only an incomp&te record of the trails- ■ actions There is a common misconcept:cn that in using double-entry this in- • Ives doUVe work and no doubt thisij dea has arisen because the did text’J books on bookkeeping drifffeifl iftto us that every debit means a cor respond j mg credit. What those unacquainted I with the rudiments of elementary ac- , counting do not realise is that the great . bulk of the recording of the double or I corresponding entry is done by way of j totals and that little extra labour is! involved. Briefly, the advantages of double- j entry over single-entry can thus be ( summarised : (a) A complete record of each trans- j action is made, and since real and nominal as well as personal accounts are kept, full information concerning the business is avail-’ able. ib) Since for every debit a corresponding credit is made (most of them by totals as already explained) the arithmetical accuracy of the books can be checked by means of a trial balance. •'(.) Since nominal accounts are kepi, detailed trading and profit and 10.-s. accounts and a balance sheet; can be prepared. Farmers who have not thought it ! necessary to seek the aid of a profes- ! sional accountant to make up their ac-, counts and to render the necessary re- ) turns to the Tax Department need have , no misgivings as to the cost involved. ; Apart from the very real benefit of knowing one’s true financial position from year to year and the freedom from j needless worry and anxiety in render-, ing returns, savings which can be in most cases will more than offset thap • moderate charges levied. To keep the accounts of the average farmer on a sound system involves very little accounting work on the part of ; the farmer himself. Once a set of i books has been opened, and this can ; only be done by having al the outset a i full list of assets and liabilities so that : his capital position can be ascertained, 1 a record of receipts and payments is. all that is necessary to enable the skilled accountant to do the job. USE OF CHEQUES Many farmers adopt the principle of banking all their receipts and drawing cheques for all payments, and if this 1 course is followed, provided that details : of income and expenditure are available. any accountant can quickly write up die books and make out the accounts. Some farmers, however, prefer to keep a cash book and a purchases and sales book, while others again maintain more elaborate records. As to cost, one leading public accountant who takes care of over fortv I sets of books for small farmers has in- ' formed us that his fees for duties such as we have described range from five to twenty guineas per annum. This man covers a large country area and usually arranges to do a group of accounts in a d’stricl to avoid unnecessary travelling cost. - r conclusion, we would stress the value to the community of having farming records kept on sound accounting lines, in these days, too. of heavy taxation, every farmer should see that he is not called upon to pay to the State more than is legitimately due. Loose methods of bookkeeping, apart from the question of securing proper allowances for depreciation of plant and equipment, do not as a rule save taxation, rather the reverse. However, as with c. retail business, if a farmer wishes to sell his property he is more likely to make a good sale if lie can produce concrete evidence of verified records as to the productive capacity and net tarnings of his farm.