FARM ACCOUNTS

Farm accounting is the art recording, classifying and summarizing financial transactions of a farm in such a way that meaningful
interpretations can be made from the recorded information.
Importance of farm accounts
 Helps to show debtors and creditors thus assist in settling and collecting debts
 Helps farmers to service loans and banks overdrafts
 They help the farmer to calculate profits or losses of a farm at the end of an accounting period
 Farm accounts record reflect the actual income of the farmer hence preventing over or under taxation
 Assist in sharing profit and dividends among partners and share holders
 They help in planning, budgeting and decision making in the farm
 Farm accounts record can be used to claim compensation from insurance firms
 They show the progress of individual or combined enterprise in the farm.

Farm records and accounts include:

1. Financial documents
2. Financial books
3. Financial statements
1. Financial documents
These are documents, which show details of financial transparency of income and expenditure. These documents include:
a) Invoice
b) Receipt
c) Delivery note
d) Purchase order
e) Payment vouchers
a) Invoice
This is a document issued by a seller to a buyer when goods are bought or services rendered on credit. Invoice contains the following
details:
 Date of transaction
 Type of goods bought
 Quantity of goods bought
 Price per unit
 Total cost of goods bought
 Date payment is expected
Example of an invoice
INVOICE
Date----------------
To-----------------------------------------------------------------
From-------------------------------------------------------------

Quantity Particulars @ KSh cts

TOTAL
b) Receipt
This is a document issued when payments for goods or services are made it contains the following:
 Date of payment
 Amount paid
 Goods and services for which the payment is made
 Firms letter head
 Receipt number
 Form in which payment is done
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Format of a receipt
CASH SALE P.O Box-----------------
Date --------------------

From--------------------------------------------------------
To -----------------------------------------------------------

Quantity Particulars @ KSh Cts

No. TOTAL
Cash/cheque
c) Delivery note
This is a note prepared by a seller to accompany goods being delivered to a buyer. It has the following details:
 Date of delivery
 Quantity of goods delivered
 Means of delivery
 Recipient of goods
 Conditions in which goods are delivered
Format of delivery note

Phone--------------------------- DELIVERY NOTE P.O BOX -----------------

DATE:--------------------

To ____________________________________________

From __________________________________________

Please receive the under mentioned goods in good order and condition
___________________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________________
___________________________________________________________________________________________________________________________________________
__________________No._____________________________________________________________________________

Received the above goods in good order/condition

Signature-----------------------------

d) Local purchase order

This is a document prepared by a buyer and sent to a seller requesting for the supply of goods or services. It has the following details
 Types of goods required
 Quantity of goods required
 Date within which the goods should be delivered
 Name of the person placing the order
 Name of authorizing officer
 Purchase order No.

e) Quotation
This letter indicates the types of goods being sold and their respective prices as well as terms of payment.

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2. Financial books
These include:
a) Ledger
b) Inventory
c) Cash book
d) Journal
a) Ledger
A ledger is a book where all accounts are kept. A page in a ledger book shows an account for an enterprise. The page is divided into
two parts: Debit and Credit
Debit side on the left side and shows increase in assets or decrease in liabilities.
Credit side is on the right and shows decrease in assets and increase in liabilities
Format of a ledger

DR CR
DATE DESCRIPTION KSH CTS DATE DESCRIPTION KSH CTS

b) Journal
a journal is a book in which unclassified or any additional information is recorded. Information made on the journal includes the
following:
 Error rectification as in other books either showing cancellation or correction for the same
 All transfers of information from one account to another
 Entry of old entries to a new book of account
 Date of transaction
 Name of the debited or credited account
 Amount of money involved
 Description of the transaction
Format of a journal

DR CR
DATE PARTICULARS FOLIO AMOUNT DATE PARTICULARS FOLIO AMOUNT

KSH CTS KSH CTS

c) Inventory
This is a book in which a record of all the assets owned by a business or an individual is kept. There are two types of inventory
namely:
Consumable goods inventory: This is used to record goods which get used up in a production process eg fertilizers, chemicals etc
Permanent goods inventory: This is used to record goods (assets) which do not get consumed but only undergo depreciation eg
tools, equipment etc.
Example of inventory (permanent)
DATE COMMODITY QUANTITY WRITTEN OFF BALANCE COMMENT

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d) Cash book
This is a book where every transaction involving payment and receiving of money are recorded. The recording is done on one page
which is divided into major columns namely: sales and receipts (Dr) and purchases and expenses (Cr)
Format of cash book
DR CR
INCOME RECIEVED EXPENSES/PURCHASES
DATE PARTICULARS KSH CTS DATE PARTICULARS KSH CTS

3) FINANCIAL STATEMENTS
This includes:
a) Balance sheet
b) Profit and loss a/c
c) Cash analysis
a) Balance sheet
This is a financial statement that shows the firm’s financial position at a specific time of the year. Balance sheet has two sides
namely:
i. Assets: right hand side
ii. Liability: left hand side
i) Assets
These are resources owned by the firm e.g. buildings, raw materials, machinery etc. assets are divided into:
Fixed assets: these are permanent and long lasting assets e.g. plantations of coffee, tea, buildings, land, tractors etc
Current assets: these are resources that are changeable into another form in short time e.g. livestock, crop in store, cash in hand,
debts receivable etc
ii) Liabilities:
These are debts that a farmer or business owes other business firms. Liabilities are divided into:
Long term liabilities: these are loans which are to be paid for long period e.g. 5years
Current liabilities: debts payable within a period of one year
Capital: this is the owner’s equity or net worth
Format of a balance sheet
TITLE
LIABILITIES ASSETS
CURRENT LIABILITIES KSH CTS CURRENT ASSETS KSH CTS

Short term debts Cash at hand

Rent Cash in bank
Wages Debts receivable
Bank overdrafts Stock in store
SUB TOTAL Livestock
xxx xx SUB TOTAL
LONG TERM LLIABILITIES xxx xx
Bank loans FIXED ASSETS
Interest on loans Machinery
SUB TOTAL Perennial crops
Buildings
TOTAL LIABILITIES Land
SUB TOTAL
NET WORTH/OWNERS EQUITY
XXX XX xxx xx

TOTAL XXXXX XX TOTAL XXXXX XX

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EXAMPLE 1
Prepare a balance sheet from the following information.
Openyas farm owed KSh 13000 from KGGCU, KSh 5000 for seeds, drugs, fertilizers from Unga ltd and had an overdraft from the
cooperative bank of Kenya for KSh 10000 to build a milking shed to be repaid within 3 years. The farm had also not been paid KSh
2500 for milk delivered to KCC and unpaid salaries stood at KSh 5000. The inventory of the farm as at 31st December 1992 is as
shown below:
 Value of land 50000/=  Poultry 5000/=
 Equipment 20000/=  Poultry feeds 500/=
 Buildings 35000/=  Coffee plantation 38000/=
 Cattle 25000/=  Drugs 500/=
 Goats 2000/=  Cash at hand 1500/=

Openyas farm
Balance sheet as at 31st Dec. 92
LIABILITIES ASSETS
CURRENT LIABILITIES KSH CTS CURRENT ASSETS KSH CTS

KGGCU 13000 00 Milk 2500 00

Seeds 5000 00 Cattle 25000 00
Overdrafts 10000 00 Goats 2000 00
Salaries 5000 00 Poultry 5000 00
Feeds 500 00
SUB TOTAL 33000 00 Drugs 500 00
Cash 1500 00
CAPITAL/NET WORTH 147000 00
FIXED ASSETS
Land 50000 00
Equipment 20000 00
Buildings 35000 00
Coffee plantation 38000 00

TOTAL 180000 00 TOTAL 180000 00

B) Profit And Loss Account

Financial statement showing whether the business has made a profit or loss during the Accounting period
a) Income side
 Closing valuation: An account showing the value of the farm at the end of financial year
 Sales and receipts: all sales plus debts receivable
b) Expenditure side
 Opening valuation: An account showing the value of the farm at the beginning of the financial year.
 Purchases: all items bought and debts payable

Benefit of a profit and loss account

 Helps the farmer to detect whether he has loss or profit
 Helps in tax assessment to avoid over taxation
 Acts as evidence when a farmer requires a loan

Format of profit and loss account

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 TITLE
EXPENDITURE INCOME
OPENING VALUATION KSH CTS SALES AND RECIEPTS KSH CTS

PURCHASES AND EXPENSES CLOSING VALUATION

TOTAL

PROFIT

TOTAL TOTAL
Example 2
Prepare a profit and loss account for Mr. Kosgei’s farm for the year ending 31 st Dec, 2007 given the following information Opening
valuation was 1,615,500, paid wages amounting to KSh. 505,000, bought tools worth Kshs. 82,700, bought cattle feed worth Ksh.
52,000 and sold cattle worth Kshs 80,000, sold milk worth Kshs. 432,500. The cost of agro-chemicals was Ksh.32, 000 and sold milk
worth 320,000. His closing valuation was KSh. 1,432,000.

PROFIT AND LOSS ACCOUNT FOR MR. KOSGEI’S FARM FOR THE YEAR ENDED 31ST DECEMBER 2007
Expenditure (purchase and expense ) Income (sales and receipts)
Kshs Cts Kshs Cts
Opening valuation 1, 615,000 00 Sales of cattle 80,000 00
Wages 505,000 00 Sales of milk 432,500 00
Tools 82,700 00 Sales of milk 320,000 00
Cattle feed 52,000 00 Closing valuation 1432,000 00
Agrochemicals 32,000 00 Total 2,264,500 00
Total 2,286,700 00

Net loss 22,200 00

Total 2,286,700 00 Total 2,286,700 00

i) Did the farm made a profit or a loss, and of how much?
The farm made a loss of Kshs. 22,200

EXAMPLE 2
Prepare a profit and loss account for ubao farm for the year ending Dec. 98 using the following information. The farm manager made
the following purchases during the year.
 Seeds and fertilizers 1800
 Disc plough 30000
 Fuel 1000
 Feeds 1500
 Sold maize to KGGCU 10000
 Sold potatoes to school 2700
 Milk to KCC 5000
 Expected from choka farm 2000
 Opening valuation 40000
 Closing valuation 60000

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Profit and loss account of Ubao farm for the year ending 31 st Dec 98
EXPENDITURE INCOME
KSH CTS SALES AND RECIEPTS KSH CTS

Opening valuation 40000 00 Maize 10000 00

Potatoes 2700 00
Purchases Milk 5000 00
Disc plough 30000 00 Choka farm 2000 00
Seeds and fertilizers 1800 00
Fuel 1000 00 Closing valuation 60000 00
Feeds 1500 00

TOTAL 74300 00

PROFIT 5400 00

TOTAL 79700 00 TOTAL 79700 00

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