Dr Philip Theunissen is a farmer and an agricultural accountant from Bethlehem in the Free State. He understands the importance of financial record-keeping from both sides – as a farmer and as a professional who assists some of the leading farming operations in South Africa.
Here is his advice for farmers:
The purpose of financial records is to document the financial course of a business. This must be done according to certain norms and standards to make the records acceptable to various parties and understandable to everyone involved in the business.
These records should meet three basic needs. First, they must be usable for management purposes. Second, they must meet accounting requirements to be acceptable to auditors, bank managers and trading cooperatives. And third, they must satisfy tax requirements.
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Records must be accurate. If there are calculation errors, they will not only give you the wrong financial picture of your business but will also call into question the integrity of your business if the bank manager realises that certain figures need to be corrected.
Just as important is that your records must be prepared in good time. A farmer works in a constantly changing environment, which must be reflected in your records. That is why your financial figures must be prepared in good time. If you wait too long, you cannot make decisions based on an accurate reflection of what is going on in your business.
Ideally, your financial records should also contain management and tax statements.
You can keep it simple
A handwritten system consisting of loose components is not necessarily less effective than using a software program, but computers have made it easier to operate a fully integrated system with the same effort that can accommodate different facets of record-keeping. A transaction can, for instance, be entered once to provide management and tax information.
However, an analytical cash book with columns can be very effective. It is a handy learning tool to master the basic principles of accounting. Using a computer can be a bit abstract, and many beginners quickly give up if they cannot follow the trail of a transaction as easily as they do in a manual system.
Keep source documents
The basis of every transaction, as far as record-keeping is concerned, is a source document. The bank’s proof-of-payment documentation proves that a transaction took place. The invoice from the co-op is proof that the farmer bought items on credit, and the settlement statement from the livestock auctioneer means that the farmer had an income. Without these documents, accurate record-keeping is impossible.
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Being registered for VAT makes the substantiation of transactions necessary. When the Receiver conducts a VAT inspection at a farmer’s premises, the farmer must be able to produce the source documents. A logical and structured filing system is critically important, and all documents must be kept for five years to comply with the requirements of SARS.
Keep source documents
There is logic to keeping records – always keep in mind the purpose. It helps to be organised and to approach the task in a structured manner. An effective filing system could mean the difference between frustration and enjoyment.
Let the record system work for you. Keep it simple and logical, and enjoy getting to the end goal.
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Keep source documents
- Financial record-keeping is about measuring an economic unit expressed in monetary terms. You therefore need to set up different classes of accounts (assets, liabilities, owner’s equity, income and expenses) under various categories in the financial records where transactions can be recorded.
- Financial record-keeping works strictly according to the principle of double entries. Double-entry bookkeeping is a method of recording transactions where for every business transaction an entry is recorded in at least two accounts as a debit or credit. In a double-entry system, the amounts recorded as debits must equal those recorded as credits.
- The amounts appearing in the financial statements must give a true representation of the farm’s financial position. It is standard practice to, as far as possible, reconcile and confirm the balances in your records using statements and certificates from the institutions with which you trade.
- The calculation of any form of tax brings additional administration for the farmer. Throughout the financial year, the farmer can provide his records with the necessary notes and set up his accounts in such a way that he can obtain all the relevant information to prepare the tax statements. In this way, the farmer’s financial records can meet both his management and tax needs.
