 Welcome to this Farm Accounting 101 presentation on Opening a Farm Checking Account. I'm Robert Page, Regional Extension Agent and member of the Farm and Agribusiness Management Team with the Alabama Cooperative Extension System at Auburn University. If you already have a personal checking account, why should you open a second account? The answer is because your farm is a business, assuming that you are farming to make a profit rather than just farming as a hobby. If you farm only for personal pleasure, then you don't need a separate farm checking account. On the other hand, if you are farming with the intent to make a profit, then you have to have a farm business, which needs a separate bank account to track farm income and expenses. Most farm families have a personal checking account that will have deposits for all farm payroll checks and other farm income. These deposits increase the amount of money in a personal checking account. Typical bank withdrawals for your personal account or checks or debit card transactions for personal expenses. Then there is a separate farm business checking account. Sometimes the account is opened at the same bank and sometimes the account is opened at a separate bank to better separate personal from farming bank transactions. Typical farm deposits for the farm account include money received for crop or livestock sales, funds received for farm loans and funds from USDA and other government payments. Typical bank withdrawals are checks and debit card transactions for farm operational expenses, as well as for farm loan payments. The saying, what gets measured gets managed is a quote often attributed to management consultant and author Peter Drucker. However, whoever said it first, farmers like other small business owners need facts and information to successfully manage their business. A properly documented farm checkbook is an excellent tool for tracking farm income and expenses during the year. Whether you prefer to use a handwritten checkbook like the example here or a computerized electronic checkbook, this is your place to record every dollar that comes into and goes out of your farm checking account. Additionally, use this checkbook's memo lines to record key production information about the numbers of bushels or crops sold for each crop sale bank account. Don't rely on memory when you have an easy place to write this information down for future reference. Similarly, use the memo lines to document or describe each expense in detail. At the end of the year, you will be happy you took that extra minute to describe exactly what the check was for. Your checkbook register is calculated using arithmetic to add and subtract from your opening account balance. In this example, there is a $1,000 balance in this bank account on March 1st, the beginning of the month. Then there are a series of checks written and debit card transactions made during the month to local vendors. These are listed in the check column and represent withdrawals of cash from the account decreasing the cash balance. Additionally, there are two deposits for the month which increase the cash balance. The largest deposit is on March 12th for $2,315.81 and is for cattle sales at the local stock yard. The other deposit is at the end of the month for the automatic interest deposit by the bank for the interest paid on the money on hand at the bank. So as of March 31st, the end of the month, the farm checking account has a balance of $2,454.69. During the month, you should write down each bank account deposit for incoming money and each check or debit card transaction for outgoing money in your farm checkbook in order to keep track of how much money you have in your farm checking account after each transaction. However, sometimes you may make a mistake and miss writing down an expense item such as a debit card expense or the interest paid by the bank for the money you have deposited in the bank. Those are just two reasons why you should reconcile or compare the monthly bank prepared statement of your account to your banking checking records. This process of comparing each item you entered to the list of transactions listed by the bank is called reconciling. This reconciliation process should be done monthly, typically a day or so after you receive the final bank statement in the mail or electronically by email from your bank. Note, while some people may use their bank's online records for bank reconciliation, it is a better practice to use the bank prepared statement for the reconciliation process for consistency from month to month. Reconciling the monthly bank statement prepared by your bank to your bank account register is a time proven method of finding errors and missing information on your check register. From time to time, you may also find errors on the statement prepared by the bank, but not often. Start by verifying that all checks and debit card transactions that appear on the bank statement also have been recorded in your check register. Then verify the dollar amounts for each item in your check register. Sometimes the dollar amount in your register is different than the dollar amount recorded on the bank statement. Once you have gone through both the register and bank statements, then complete the bank reconciliation worksheet to work out any differences in the ending balance of your check register from the ending balance in the bank statement. If there are differences, in most cases it will be an in-process check or deposit that has not yet cleared the bank. With practice over a few months, the reconciliation process can be completed quickly. Let me repeat that sentence. With practice over a few months, the reconciliation process can be completed quickly using either the worksheet provided by the bank or an electronic bank reconciliation program in your financial software. While some people may think that just recording their expenses is enough and they can throw away receipts, the IRS thinks differently. If you are audited, you will be asked to provide documentation that proves each expense that you deducted on your farm tax return. Therefore, your canceled check is not the same as a receipt. While there are many ways to organize receipts, including just throwing them all into a shoebox, there are better ways to store and organize receipts. Some farmers may scan and electronically store receipts and other farm documents on their computer. Other farmers may file them in a three-ring binder by month. As a farmer, small business owner, you need to find a filing system that works for your records and keep it up to date. Let's take a moment to review what we have learned in this presentation. Farmers need a dedicated, separate farm checking account to record checks and deposits for their farming business. Each bank deposit and check or debit card transaction should be recorded in the farm checkbook. Record all needed information on the check memo line and in the check register. Keep your receipts or documentation for each check or debit card or bank deposit transaction for tax purposes. Organize these supporting documents with a filing system. One easy method is to file each document by month in a three-ring binder. As your farm operations become larger, you may prefer a different filing system. We close by saying thank you for watching today's presentation on using a farm checking account. 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.