Agricultural Science

Farm Accounts, Farm Records, Importance of farm accounts


Farm account are statements of money paid out or received for goods and services used in a farming business.


Farm records are written documents showing major activiyies goimg on in the farming business. To enable farmer to manage his farm very well ,he must keep some records

Importance Of Farm Records And Accounts

  1. Changes in prices of produces : enables farmers to monitor the changes in the price of produce bought or sold by the farm
  2. It show the financial position of the farm
  3. Whether profit or loss is made
  4. Detection of fraudulent practices
  5. For taking management decisions
  6. For procurement of loans
  7. Determination of annual tax
  8. Determination of actual worth of the farm
  9. For comparing management efficiency
  10. Farm auditing
  11. Data for planning and budgeting

Types of farm records and account

Farm records which a good farmer should keep are

  1. The cash book receipt and payment record
  2. Annual valuation
  3. Farm diary
  4. Farm inventory
  5. Yield and production records
  6. Payroll or labour record
  7. Farm input utilization record
  8. Profit and loss account

Types Of Farm Accounts

  1. Sales account : this is also known as sales and receipt account
  2. Purchase account
  3. Farm valuation
  4. Cash analysis account
  5. Farm income statement
  6. Balance sheet or Net worth statement

Definition Of Some Accounting Terms

  • Farm asset: is anything of value n the possession of a farm business. Assets are grouped into two classes
    1. Fixed assets: these are assets which are not used up during production. Example, landed property ,farm buildings
    2. Current assets: these are assets which are used up during production . Examples, water, feed, drugs , fertilizers etc.
  • Liabilities : is the money owned to external persons or corporate bodies e.g. loan from banks

Liabilities are grouped into two classes

  1. Current or short term liabilities : they are debts that must be paid within one accounting year g. creditor’s loan
  2. Long term liabilities : there are debts which cannot paid back within one e.g. long term loans from banks
  3. Net capital, Net worth or owner’s Equity: this is the total money supplied by the owner of the business.

Assets – liabilities = owner’s equity

  • Liquidity: is the ability of the farm business to meet its financial commitment as they fall due.
  • Solvency: this is the ability of the farm business to cover the liquidation of the asset.
  • Appreciation: refers to increase in value of worth of an asset as the asset is being used over time.
  • Depreciation: this refers to decrease or loss or reduction in value in the value or worth of an asset as the asset is being used over time.
  • Salvage value: this is the amount at which an asset is sold off when it is no longer economical to keep or when the cost of maintenance of the asset is too low.
  • Useful life of an asset: this means the number of years a piece of farm equipment can effectively serve a farmer.

Calculation of depreciation and Salvage value

There is relationship between depreciation and salvage value of fixed assets.

Methods of calculating depreciation of farm machines

  • Straight line method or fixed installment method
  • Annual revaluation method
  • Unit of production or output method
  • Declining/reducing balance method
  • Sum-of-the-years-digits method

Formulae for Calculating Depreciation

  1. Total depreciation = cost of asset – salvage value of the asset
  2. Annual depreciation = cost price-salvage value

No. of years in use


Lifespan (yrs)

Questions1.What is farm record?

                  2.What  is  farm account?

                3.State five types of farm record.

                4.Explain five  importance of farm record.

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