 Welcome to this Farm Accounting 101 presentation on QuickBooks for Farmers. Today we will be covering Lesson 4, Introduction and Sample Entries No. 7 and 8. 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 ACES Farm Analysis Program worked with the Alabama Farmers for over 20 years, helping them to develop and maintain accurate financial and production records. In developing this series, we reviewed the different types of checks and deposits made in farm record keeping by these farmer clients, 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 will be reviewing the next two entries for Lesson 4. Write a check for payment on farm loan and record a deposit for farm crop sales. The other entries are 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 ACES Excel for Farmers YouTube presentations. For those viewers who prefer using an Excel spreadsheet to keep farm records, please visit the ACES 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 have said in previous lessons, the Farm Accounting 101 series is 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. There are farmers or other agricultural producers. There are farm family members who are untrained in accounting, and there are management accountants who are trained in both accounting and business recordkeeping who may or may not be part of the farm family. Any assumptions or conclusions or observations made during this presentation are based on my years of experience working with farmers, their families, and their accountant tax providers, tax preparers in the ACES Farm Analysis Program, as well as my time teaching ACES financial recordkeeping small classes, as additionally my time with 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 ACES poultry farm number one. The key features of this sample farm include over 500 sample checks, six deposits, and other transactions posted for this farm, an expanded use of excuse me, an expanded chart of accounts based on standard farm analysis client files, use of the class option to classify income expenses to one of the three farm enterprises, poultry, livestock, or row crop. This class feature really can help us see which farm enterprises make 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. Now let's move on to sample entry number seven, making a payment on a farm loan. What are the facts? In this example, the farmer is making a quarterly payment on the used New Holland T4.75 tractor loan, which was discussed earlier in lesson two. The payment amount to the local ag lender is 1743.75. We will separate the payment into two parts, principal and interest. So now we'll change the screen view to QuickBooks. In this example, we type in local ag lender. The dollar amount of the check is 1743.75. Now a word to be aware of. If you notice when we type in the local ag lender, we had three different accounts come down at the bottom of the screen. That's because the local ag lender is tied to multiple loans, and we have some memorized transactions against this ag lender. So we need to use the correct account numbers. So in this example, the first one is for the loan amount. So which loan are we talking about? Well, this ag lender has an operating loan. There's the New Holland loan, and this one is for a house and land loan that the farmer has. So we select ag lender New Holland Tractor T4.775 loan number 123. The principal amount is 1575.33. So we've indicated on our memo line that this is the principal payment, quarterly New Holland T4.75 loan. As a note, C loan statement for details. Because we're going to assume in this example, we have received the loan statement from the bank that we're using to allocate principal and interest. Once again, since this is a balance sheet item, we're not going to charge this to a particular class account where it could be livestock, row crop, or poultry. This is a balance sheet account. We don't use classes for anything there. But we will on the next line. We've talked before about having a separate interest account for each individual loan. And so in this particular case, we're making a loan on the New Holland Tractor. So do we have currently so far a setup for the loan? No, we do not. So we're going to have to add a new account number. And this is an expense account. And we'll just simply call it, for the time being, we won't use an account number. We'll call this interest New Holland T4.75 loan. And this is a sub-account of interest farm loans. So this would be, we could use 033 up here as our account number. And we could use 033-004, or we could use 033-3 of the loan number if we had that information handy. So in this particular case, we're just going to, it's a sub-account of interest farm loans, 033-115. Now, as you can see, I've just typed in under the description that this is the interest on the New Holland T4.75 loan, which is a 36 month loan, save and close. And if I pull this over here a little bit more, you can see that 033 is the prime account, 033-005 is the sub-account. And we're gonna put in here that the interest amount is 168.42. Interest payment, quarterly, Newhawn, T4.75 loan. You may ask, why are we doing all this memoing? Memo here, memo here on what are we paying? It's because when the producer or farmer is reviewing the profit and loss report, looking for errors and omissions or things that need to be changed, we need to make everything as clear as we possibly can when he or she is reviewing these documents later on. So this particular one, since this is interest on a tractor, this is a row crop piece of equipment. So the interest is going to be charged a row crop. Now, let me also point, we've talked earlier about the statement that we're using to justify the breakdown of this versus this. And so we would simply scan that statement and attach it to this particular check so that when we looked at this later on, here's the check, there's the statement, and we could just easily view it. Okay, now it is ready and we're going to delete this line because we don't need it. Print the check and save a new. We know that there is one item, which is the balance sheet item that has not been assigned to class. That is correct. Now let's take a look at it from the accounting point of view. Here's the accounting entry for that tractor loan entry. As you can see, loan payable, Aglender, New Holland, T4.75 is a long-term liability account. And we have debited it for 1575.33. When you debit a loan payable, that means that the balance of the loan payable goes down. On the other hand, we've also got an interest. New Holland loan and an interest expense account is also debited for $168.42. That's an expense going up. And the offsetting entry is cash to farm checking, which is a current asset. And that is that 1743.75 has left the checking account. As a reminder note, we just discussed this. Rather than using just one interest expense account, we recommend setting up an interest expense sub-account for each farm loan outstanding. Using this methodology, each farm loan has their own loan payable QuickBooks chart of account listing and a matching loan interest expense. This helps the accountant to verify or adjust the year-end QuickBooks balances to the Aglender's December 30th, 2021 Loan Balance Report and tax documents for this New Holland loan. Now let's move on to sample entry number eight, recording farm crop sales. What are the facts? In this example, the farmer has sold corn to the local grain elevator and is recording to the deposit into the farm bank account. There are two methods that we're going to be covering today on how to enter this deposit. One, the first method is the simple bank deposit entry only. And method two is creating a sales receipt for the follow-up bank deposit. Method two introduces us to the sales report feature in QuickBooks. So let's change to the other QuickBooks screen. Now we're going to go into record deposits right over here. And our entry will be to the bank and we put a notation here. This is selling corn sales deposit. So our account here in the middle is corn sales. So we scroll down through the chart of accounts and there we have the standard farm analysis crop sales listing. Whereas the default chart of accounts in QuickBooks may only have one crop or feed sales account. We have all these different sub-accounts and the standard farm analysis chart of accounts. And so we're going to be using corn sales, 1.001.020. Now what else do we want to put on here? Well, this is 614 bushels at 3.55 per bushel. And this is row crop. And the dollar amount of this sale is 2.179.70. Now, just as a reminder, these are sample made up entries. These are not current corn sale prices. This is just a made up deposit strictly for your information. So this is where it's going to be deposited to the local farm checking account and we can simply save and close. If we take a look at our check register, there it is. 2.179.70 charged corn sales and it's a deposit for corn sales deposit. Very simple, very straightforward. Now the second method we want to talk about is using this feature right here which is creating a sales receipt. And let's just walk through it very quickly. In this example, we're going to sell corn. Do we currently have corn in our list? We do not. So we'll add new. Now if we wanted to enable a unit of measure, if you're using QuickBooks accountant software which I'm using, this option is available. If you're using QuickBooks Pro software, units of measure is probably not on there. So we will not use the unit of measure. We'll just simply type it here. We also don't know the rate on corn sales changes from day to day, week to week, month to month. So we don't want to put a rate in here. The only thing that we do is we point it to the correct listing in our chart of accounts, corn sales. Simple as that. All right, so we have corn, we have bushels of corn. And up here we could say local grain elevator. And the quantity we're looking at is 614 bushels. This is for row crop, and the dollar amount is 2179.70. And see the system, once I type that and hit tab, the $3.50, 55 cents per bushel is automatically calculated by the software. So we do the sales receipt. So we do save and close. Now you notice we've done this. If we look at this and come down here, we now record the deposit. And notice there is a little one right here. So we click on this. It shows the deposit we want to enter. Press okay. And it comes to the undeposited funds. This is corn sales deposit. Record corn sales deposit from grain elevator. Once again, this is a row crop and save and close. Now what's different about this? Well, let's just take a look at this report. Under sales, and we look at sales by item summary. There is our corn sales for the month of January 2020. 61, 614 bushels. There's a dollar amount, percentage of sales. Now, if you want to keep accurate unit production sales records, you really ought to strongly consider using this sales receipt feature. Because this allows, if you have five years worth of information and QuickBooks, I could simply change these dates up here from here to here and look at five years of corn sales and have all the information straight at my fingertips. This is an excellent item that many farmers can take advantage of to really give them some very good production records right at their fingertips. So now I have two deposits in here for 2179, 70. So we're going to take, we're gonna keep the first one and we're going to delete the first example we showed you, okay? Now let's move back to our PowerPoint presentation. What's the entry look like from the accounting point of view? Cash, farm checking, which is a current asset, is debited or increases by 2179, 70. Corn sales, which is an income account, also increases with a credit entry of 2179, 70. Thus, our total debits and credits are 2179, 70. And a reminder note, for those farmers who do not use the sales receipt option for crop sales, which was our method two, we strongly recommend recording at least the number of bushels sold and the price per bushel in the memo field of each deposit entry for crop sales. We close by saying thank you for watching lesson four, QuickBooks for Farmers. 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.