 Welcome to this Farm Accounting 101 presentation on QuickBooks for Farmers. Today we will be covering Lesson 2, Introduction and Sample Entries No. 3 and No. 4. 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. As we've said in Lesson 1, the ACES 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 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 familiar. In today's presentation, we will be reviewing the next two entries. Record farm equipment purchase with check for down payment, trade-in and finance agreement, and record deposit for a farm operating loan. 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 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 do assume the viewer has some familiarity with QuickBooks. Our objective is to show how these sample transactions can be entered into QuickBooks quickly and effectively 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, 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 that we talk about in this series are based on my years of experience working with farmers, their families, and their accountant tax providers and the ACES Farm Analysis Program, as well as my time teaching ACES financial recordkeeping in small classes as well as my time in public accounting prior to joining Extension. So if we're going to discuss farm accounting, we need a sample QuickBooks file. So we created ACES Poultry Farm No. 1. The key features in this sample farm include over 500 sample checks, deposits, and other transactions posted for this farm for the year 2020, expanded chart of accounts based on standard farm analysis client files, and most importantly of all, use of the class option to classify income expenses to one of three farm enterprises. In our example, we use poultry, livestock, and 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 be seeing some sample reports using this class option shortly. Now let's move into our first sample entry, buying a piece of farm equipment with a cash-down payment, equipment trade-in, and financing the balance. What are the facts? In this example, the farmer bought a used New Holland T4.75 tractor for $35,500 from the local implement dealer. How was payment made? A 10% cash-down payment of $35.50, a trade-in allowance of $18,000 for an old tractor, and financing of $13,950 for 24 months with a local ag lender. So if we're going to post this, check. Let's switch over to our view in QuickBooks. Okay, now we could make this check right here under Write Checks or in the Check Register. Alternatively, we could make it as a journal entry. But for time purposes, we're going to use Write Checks. Now, I'm going to warn you, this is a compound entry and is not something you'll see every day. And if you're not familiar with basics of accounting, let me give you a shortcut as we go through here. The check that was written is check number 2146. Today's date, and it was made out to the local farm equipment dealer. And the check amount was $35,500. Once again, invoice or bill of sale number, we don't know. And ideally, if you're the farm record keeper, you're going to have a copy of the bill of sale from the local implement dealer that you can scan in and attach it to this particular check. And that way, looking down the road, if there are any questions about this check, which there probably will be because this is a difficult compound entry check, you can simply make it here. And you can look at the bill of sale, print it out, have it there right at your hands and talk it over with your local accountant. So let's just go through this compound entry. One option, and this is the simplest one. This whole thing for $35,500 is going to be charged to machinery and equipment eventually. So you could say down payment for New Holland T4.75 used tractor. Now, you could stop right there and print this check and hand it to the equipment dealer. And you could just stop right there. And for many of you, that's probably the best way to go. Now, on the other hand, for those people that are management accountants or have a fairly good background in bookkeeping, we're going to show you the rest of the story. So I'm going to change this entry for those people that are feel very comfortable with management accounting. Machinery and equipment, the total dollar sale amount is $35,500. And so that is purchase of used New Holland T4.75 tractor. Now, once again, I'm not using the class function for balance sheet items. I simply use the class functions for profit and loss reports. Now it tells us that we have $31,000 that we need to continue to allocate. Well, we've got $35,50 up at the top. We've already allocated. So now we need to set up the loan from the ag lender. So do we have a loan already? So we come up here to the top, pass all the income accounts into the various liabilities. And there is a loan that we set up earlier from the ag lender for the New Holland T4.75, which is loan number 123. And notice it is a long-term liability as opposed to a short-term other current liability, because this is a three-year loan. So the dollar amount of the finance is $13,950.00. Now notice I've put in the negative sign there. And we're going to have to use that to get this thing to balance. So we make in our memo, this is a three-year note for New Holland T4.75 tractor loan number 123. Now, we're going to talk about this a whole lot in the future. But essentially, in the Farm Analysis Program, we tried to teach farmers that we want to have one piece of paper to one loan. So if a farm had 10 different loans, they would have 10 different pieces of paper or 10 different accounts in their chart of accounts for each one of those loans. So at the end of the year, we could have a loan document from the bank that matched the loan records in QuickBooks. So one piece of paper for one loan for one year-end document. All right, now we have $18,000 to continue to this account. And now we've got to take care of the old tractor. And that's machinery and equipment again. This particular tractor had an original purchase price of $26,000. And we got that information from the fixed asset records. And we don't know what this point, what type of tractor it is. I don't have that detail in front of me, but you'd have to get it from the fixed asset records for the farm. Original purchase of trade-in tractor bought, we'll just say, five years ago. Now this would be information that we'd need to have for the accountant so they could find this document on their fixed asset records. Now the next thing we have to do is, and I'm sorry, this should be a negative number right here. And this one is accumulated depreciation. And that is $22,300. And that's accumulated depreciation on trade-in tractor as of 12, 31, 2020. Because this is a January 2021 transaction. And the last item we got to pick up on this is the Gainer sale on the old tractor sale. So that is an other income item. And we'll just pull it down in our chart of accounts. Notice we do have a pretty extensive farm analysis chart of accounts. And see there it is here under sale of assets capital as an other income account. We've got machinery, building, and land sales. And this one is for machinery sales. So we're going to have a gain on sale of trade-in tractor. Now if we knew what the item number was in the fixed asset records we could type it in. But we don't have it. And ideally we would have it. And we would scan in the fixed asset records. Also attach it to this file as well. So we would actually have the bill of sale for the new tractor. And we'd also have the fixed asset records of the trade-in tractor. So we could answer any questions about this particular check. And now we have this compound entry. And so it's a pretty difficult one. So if you're just the typical farm bookkeeper, you'd probably want to just stay with the $3,550 charged off to machinery and equipment. Alternatively, alternatively, and we recommend this to all farmers, if you don't have any idea where to post the document, come down here to the bottom and use the account number 999, ask my accountant how do I post this new Holland tractor purchase. Now this is just good advice. Farmers are going to have to work with their tax preparers more than likely at least two times a year. Because they're going to need some outside help. If they don't have a management accountant in the family, they're probably going to need to deal with somebody that can help them on cleaning up or answering questions about QuickBooks. And if your accountant is charging you $200 an hour to help you clean up your books, the most efficient way of that outside bookkeeper or CPA's time is to have all your questions in one spot. And that's why it is so helpful to have the account number 999, ask my accountant. So if you don't have a clue where to enter this check, just throw it in the accountant, ask my accountant, and every six months or every nine months, whatever the time is that you work with your local CPA and reviewing your QuickBooks records, they can review the 999 account and clean up two, three, four, six, eight months of questions within about 30 minutes. And that is so much faster and so much more efficient than looking through all of your profit and loss reports looking for obvious errors. So please, we recommend that everybody feel comfortable using the 999, ask my accountant because QuickBooks, as you just saw on this entry, can be a fairly difficult entry to handle. So this one is a great example for using the 999 account. So now we're just saving you. All right, now let's go back and take a look at how the accounting entry on this one looks. There it is as a standard debit and credit entry. And as you can see, it is a compound entry. Machinery and equipment is debited for $35,500. Cash is credited for $35,50. The loan for the ag lender, when you set up a loan, it is credited for $13,950. The old tractor original purchase is a fixed asset, and when you sell a fixed asset, it is credited for $26,000. The old tractor under accumulated depreciation had $22,300 accumulated as a $12,3120. And so therefore we are recovering that accumulated depreciation. And then the last line is a gain or loss on the sale of the old tractor. And in this particular example, we had a gain of $14,300 on the sale of the old tractor. So our total debits are $57,800. So that concludes this particular entry. Now let's move on to the next one. This one is a much simpler one. This is sample entry number four. A farmer gets a operating loan from the bank and records the deposit. And what are the facts? Well, for those people in farming, many producers have a standing crop loan where they borrow a usual amount, and it could be $100,000, $200,000, $250,000 that they'll borrow to make a crop on the new year. So in this particular example, the farmer is going to borrow $100,000 on a 12 month note from his local ag lender for the current crop year of 2021. So let's enter bank loan number 4461 into QuickBooks. So now we're going to change the screen view back to QuickBooks. All right, here we are on the home screen. There are two ways that we could do it. We could enter this as an entry into the check register, or we could use it right here to enter it in deposits. Just for the sake of benefit, we're going to use it here in recording deposits. I'm going to leave this blank. We're using the farm checking account. Today's date, this is a deposit, and so the memo here is going to be crop loan. Now, do we have a crop loan account already set up? So we'll click and look, come down through the bank accounts, the fixed asset accounts, farm credit card of the current liability, there it is. Account number 821-001 Ag Lender Operating Loan. Now, the reason we're going to use this is because this loan flows in and flows out every year with the same Ag Lender. So it zeros out at the end of every year. So this is a 12 month operating loan for the 2021 crop year. And this is an electronic funds transfer from the bank. This is a liability, so we don't bother to put a class on it. And the dollar amount for this bank deposit is $100,000. And we'll now save and close. Now, for those of you that like using the check register, let's just show you how it looks in the check register. See right here it is. Today's date, deposit. And see, the checks we've entered so far are over here on the checks. This one is right here under the deposits. So this is what it looks like if you're using the check register view to make your entries. Okay, now let's just take a look. What is the accounting transaction we just entered? Let's switch back to PowerPoint. The accounting entry for this crop loan is pretty straightforward. Cash, farm checking, which is a current asset, is increased with a debit of $100,000. The offsetting liability is a loan payable Ag Lender loan number 4461, which is a current liability because it's a 12 month loan. It's not a three year loan. It's a current liability. And it is credited for $100,000. The total debits and credits on this are both $100,000. And that's the end of these two sample transactions. Thank you for watching today. We close by saying thank you for watching lesson 2 in this 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 program, please visit our website at www.aces.edu.