News

Gauging farm income the best way

While income for farmers in 2011 will likely set records, an agriculture business specialist says farmers need to be careful about how they assess their individual financial success. Whitney Wiegel, with the University of Missouri Extension, says tax return information is not the best way. “I think a lot of times too many farmers will just rely on their Schedule F to kind of indicate how profitable they were throughout the year and, maybe, don’t complete a balance sheet unless their banker requires them to do so.”

Wiegel says there’s a lot the Schedule F – and a cash accounting system – won’t show, “The income from a given production year, or, expenses from a given production year may not be included with that schedule F.”

Wiegel says an accrual-based accounting system, which takes more time, is a record of income and expenses when goods or services are exchanged in a production year, not when the bills are paid.

He says now – at the start of the tax year – is a good time to start such a system or adapt a cash-based system to an accrual-adjusted income statement, giving a better picture of a farm’s financial performance.

Wiegel says any state extension service has helpful accounting information and the University of Minnesota’s Center for Farm Financial Management is an especially good source.

University of Missouri Extension

University of Minnesota