 Welcome to this Farm Accounting 101 presentation on QuickBooks for Farmers. Today we'll be reviewing Lesson 5, Introduction and Sample Entries No. 9 and 10. I'm Robert Page, CPA and Regional Extension Agent with the Farm and Agribusiness Management Team with the Alabama Cooperative Extension System at Auburn University. The ACE's Farm Analysis Program worked with Alabama farmers for over 20 years, helping them to develop and maintain accurate financial and production records. In developing this series we've reviewed the different types of checks and deposits made in farm record keeping by these client farmers and eventually selected 10 very typical farm accounting entries. We believe if you can learn these 10 sample entries, you will find the majority of accounting entries on your farm to be similar. In today's lesson we'll be reviewing the last two entries, record deposit for farm poultry contract sales with loan withholding and record cash transfer from savings to checking account. The other entries will be covered in other lessons. Lesson 6 will cover useful financial and year-end closing notes that farmers should find useful. As a reminder, these 10 accounting entries are the same entries used in the ACE's Excel for Farmers YouTube presentations. For those viewers who prefer using an Excel spreadsheet to keep using farm records, please visit the ACE's YouTube channel for Farm Accounting 101 Excel for Farmers. A word of caution. These lessons assume the viewer has some familiarity with QuickBooks. Our objective is to show how these sample transactions can be entered into QuickBooks quickly and accurately to produce useful farm financial and production records. In other words, this is not an introductory course in QuickBooks. Intuit and other vendors offer a wide array of training videos and manuals on this excellent software. As we've said in previous lessons, the Farm Accounting 101 series intended to help Alabama producers to improve their farm financial literacy. In this QuickBooks for Farmers series, we are expecting three different types of viewers to be watching. These are farmers or other agricultural producers, farm family members untrained in accounting, and management accountants who are trained in both accounting and business recordkeeping who may or may not be part of the farm family. Any conclusions, assumptions, or observations presented today are based on my years of experience working with farmers, their families, and their accountant tax preparers in the ACE's Farm Analysis Program, as well as my time teaching ACE's financial recordkeeping small classes, as well as my time in public accounting prior to joining Extension. If we're going to discuss farm accounting, we need a sample farm QuickBooks file. So we created the ACE's poultry farm number one. The key feature of this sample farm include over 500 checks, deposits, and other transactions posted for this farm for the 2020 crop year. Expanded chart of accounts based on the standard farm analysis client file setup. Use of the class option to classify income and expenses to one of three farm enterprises, poultry, livestock, and row crop. This class feature can really help us see which farm enterprises makes the most money for the farmer and which enterprises need to be reviewed for possible changes. We will see some sample reports using this class option shortly. So let's move on to sample entry number nine, recording farm contract poultry sales. What are the facts? In this example, the poultry integrator for the ACE's poultry farm number one is paying the farmer for a recent flock of chickens. We are assuming that the poultry integrator will pay 60% of the flock sale proceeds to the farmer with 40% of the proceeds going to their local ag lender as payment on one or more ACE's poultry farm number one poultry loans for initial building construction, initial machinery and equipment installation, and later equipment upgrades or additions. This is a compound entry with multiple elements including gross poultry sales for the flock which is a different dollar amount than the bank deposit amount. Principle payment for one or more poultry loans with the ag lender and interest payment for one or more poultry loans with the ag lender. Additionally, principle and interest amounts are estimates and may be slightly different than the bank's loan amortization calculations. So let's change our screen to QuickBooks so we can enter it. On the home page, we're going to go to the Record Deposits screen. Now, perfectly up front, this is a difficult entry. Now we could simply make it very simple. We could do it like this. Poultry sales is charged to Poultry Sales Mixed 002358 which is a livestock production account. This is an EFT wire transfer. This is for poultry. And the dollar amount that's being deposited into the bank is 17,442.00. Now we could stop right there because this would get the dollar amount into the bank account. However, it's not really indicative of true poultry sales because they're much higher in actuality. We're going to clear this and enter it a different way. Go back to home and this time we're going to use the check register. So today's date, deposit, and the net deposit is 17,442.00. Now we're going to click the splits button. See down here in the bottom left-hand corner for this compound entry. We're going to look for the poultry sales again. Scroll up and look for poultry sales mix. There it is, 002-358. And if we're looking at our settlement sheet, we know that the gross sales are 34884.65. Gross sales per settlement sheet for flock. And this is a poultry transaction. The offsetting entry, in this case we're assuming only one loan. Poultry loan for the ag lender. So let's go up here. This is the offsetting entry. Remember it is a compound entry. So we're looking up what are the current poultry loans. So in this example we're using poultry loan number one. The principal amount is 11,337.84. I want to make a point about this. In the memo field we've made the moat note that this is a principal paid for flock sales and this is indeed an estimate. We did this by running a loan amortization report using software you can get virtually anywhere online to calculate principal and interest for a particular loan. It's just used as an estimate. Alternatively we could have gotten the loan amortization report from the bank so we could more closely estimate. But the main thing is we're trying to establish the fact with this particular entry that the payment is going for both principal and for interest. Okay. Since this is an entry against a balance sheet account we're not going to put anything here in the class account. On the other hand under interest 033 interest this is the interest for poultry loan number one. And this one is interest of 6104.81. Interest paid for flock sales estimated. Again this is either based off a loan amortization report that we've generated on the farm or loan amortization report we've got from our ag lender one of the two. And since this is an expense account we are going to indeed charge it to poultry. Now that looks a little bit odd, doesn't it? We've got the $34,000 with no minus. The next one is a minus. This one is a minus. And so we record the deposit. Notice it isn't the deposit column as opposed to the payment column. And we'll record that. So there it is. Now let's take a look. How does this particular report appear in our profit and loss report? Come down here. Profit and loss. And there it is for January 2021. Now we want to take a look at this as the totals only. But now let's change this to the class view. Livestock, poultry, row crop, unclassified and total. So here we're looking through January so far. We have a grand total of nothing under livestock sales. $34,000 in poultry sales and $21.79 in row crop sales. So we can double click on this. And there's our deposit. We can double click on it again. And this dollar amount. Now we're looking at it from the deposit screen that we could have used originally, but we entered it instead into the check register view. But this dollar amount right here of $34,884.75 should match your gross sales on your settlement sheet. So that's one of the source documents that your bookkeeper accountant will need for this is each settlement sheet for poultry sales. So there is a classification using the class system so far based on the entries we've made so far for January 2021. And as you can see, it's beginning to build where we have some income, some expenses. And that, by the way, is an earlier intro where we sold some equipment and that's a gain or a loss on a piece of equipment covered in an earlier lesson. So now let's take a look one more time at the debits and credits of it. So we're going to go back to the PowerPoint presentation. There is that compound entry for the contract poultry sales amount. Cash and Bank, which is an asset account, was debited for $17,442 even. It went up with the debit. Contract poultry sales is an income account, and it was credited for gross sales of $34,884.65. The offsetting entry, which is the money that was withheld from the integrator to the ag lender directly, was a long-term liability principal note payment of $11,337.84. That's the principal side. And then there's the interest side, which is interest poultry loan for $6,104.81. That's an expense account. Total debits and credits are $34,884.65 for both debits and credits. Big note, the total contract poultry loan sales amount and offsetting transfers to the ag lender are shown on the FLOX settlement state. The settlement statement is an important accounting document to correctly report and verify independent contractor income or form 1099 miscellaneous on the year-end tax return. Now let's move on to sample entry number 10, transferring money from farm savings into farm checking. What are the facts? In this entry, the farmer needs to add money to the farm operations checking account from their general farm savings account. This is a simple transfer of $5,000 from one asset account to another, but it is important to understand the accounting principles for the entry as well as how to account for the transfer when reconciling the bank statement for both accounts at the end of the month. So let's change over to QuickBooks again. On the home page screen, we're going to know this time we're going to use the check register to make it very simple, or we could use the right checks. So let's just simply use the right checks. We could use it either way. No, let's not. Let's make it the simple way. Today's date, t-r-e-t-r-t for transfer. Alright, we're in the farm checking account view. If you look up here at the top of the screen, this is account 101, local farm checking. So we're depositing $5,000 into the farm checking account. The money is coming from the farm savings account. Transfer cash from savings to checking. So it's a debit or a deposit into account number 101. It is a credit or a reduction of account number 108 farm savings account. We've recorded. That's all there is to it. But now if we wanted to double check, we can go to home, select the check register again, take a look at the farm savings account. Let's see. I'm not finding it that way, so let's take a look at it here. Alright, here's a transfer transactions by account. The original balance in the farm savings account was $50,000. As you can see here on 124-2021, there was a transfer credit, which reduced that from $50,000 down to $45,000. So the farm savings account has gone down. Here's the farm balance sheet, which we will be looking at in more detail in the next lesson. Now let's go back and take a look at the accounting entry. The accounting entry for savings to checking transfer is a simple asset to asset transfer. Cash, which is a farm checking account, which is a current asset, it increased with a debit for $5,000. Cash, farm savings, which is also a current asset, was credited for $5,000, and the total debits and credits are $5,000 each side. As a reminder note, when reconciling the two bank account statements, verify that the entry posted the money transfer the correct way. In other words, checking went up, savings went down, because it's very easy to post this entry the opposite way. As you noticed a moment ago in our inquiry screen, we did take a look at farm savings, which had an initial balance of $50,000, $5,000, the credit, and the ending balance was $45,000. So looking at that on the screen, we did enter it correctly. And that completes the lesson for the day. We close by saying thank you for watching this lesson 5 in the QuickBooks for Farmers series. This segment of the Farm Accounting 101 series has been produced by the Alabama Cooperative Extension System Farm and Agribusiness Management Team at Auburn University in Auburn, Alabama. For additional information on the Farm and Agribusiness Management Team and other ACES programs, please visit our website at www.aces.edu.