Rate of return on farm assets is a financial ratio which measures the profit earned based on the farm's assets.  

To calculate:  Rate of Return on Farm Assets = Net Income / Total Assets

The higher the ratio, the better.  The greater the number, more profit per dollar of farm assets.

This will help you evaluate if the farm is using the assets efficiently. 

It is important to watch the numbers.  Be Smart!

Investment in Growing Crops is a prepaid expense reported on the balance sheet.  These are prepaid expenses to produce a crop which is not yet harvested.  Each month during the growing season, these costs are accumulated on the balance sheet.  When the crop is sold these costs are removed from the balance sheet and reported as cost of goods sold on the profit and loss statement.  Example  of costs to include in growing crop investment would be:  farm labor, repairs & maintenance, seed, fertilizer, fuel, insurance, utilities and any other direct cost associated with the growing crop.

One of the biggest mistakes business and farm owners make is mixing business cash with personal cash.  This is a NO NO!

You own a business and you have free access to the business funds, but those funds are not for your personal use.  The business earned the revenue and paid the expenses the remaining profits are the businesses.  As an employee of the business your are paid  a wage for your work and should be compensated.  The other money should remain in the business.

Keep two separate checking accounts.  One for the company and another for your personal use.  Do not mix the funds.  Pay your personal expenses out of your personal account and the business expenses out of the business account.

This is the first step in getting a handle on your finances.  

Build your wall!

Working Capital my hold the key to your farm's success.  It is the money available to meet your current expenses.

How to calculate working capital:
Total current farm assets - Total current farm liabilities = Working Capital

The higher the number, the better able the farm will be to cover their short-term obligations.

Cash keeps the wheels turning.

Transportation cost to market - this is the cost of moving finished farm products from the farm to the market.  This cost does not increase the value of the product, merely moves it to the market.  Transportation cost to market is not included in the production cost, but is a variable operating expense.

The spreading of costs over time, location, department or expense accounts.  For example, an electricity bill of a $1,000 may be spread or allocated over several locations on the farm.  The goal is to match the expense with the products being produced.

Depreciation Expense:
The cost to use a piece of equipment during a season, which reflects the decline in value of the equipment.  As equipment is used to produce income the value of the equipment is reduced because of wear and tear.  Over time the equipment will "wear out" completely and be of no value.  The idea is to record those usage costs to match the productive period of the equipment.

For example, you purchase a new tractor for $100,000 and estimate the tractor will be used for 5 years before it is worn out.  The depreciation expense of that tractor for one year is $100,000 divided by 5 which equals $20,000 per year.
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Banker demands financials right away
Income statement, balance sheet a cash flow
Call spouse, books need reworked; I am dismayed
My planned conquest now sits with this sorrow

Makes no sense: debit, credit, cash, accrual,
Inventory, cost account and payroll
Assumed with QuickBooks this would be simple
Flustered and downbeat this may end bankroll

But wait it can’t end now, I won’t allow
With time and effort and analysis
Engaged an expert with accounting know how
Who told me this, the secret to success

Assets must match the liability
​And in addition owners equity ​

Each January every business which paid an employee must go through the process of preparing and filing W-2 forms.  Most software now is able to file the federal W-3 and W-2 forms electronically with a push of a button, if yours can not it is time upgrade now.  For those who live in populated states you should be able to file the W-2 forms electronically through your payroll software as well.  What about those who live in less populated states?  I hate to say this but if you are a small business with just a few employees the easiest way to file your W-2 forms, with your state, may be to just mail them in with the appropriate state form.  You may also login to your state's website and file them directly.  For example in the State of Idaho you can register to file at tax.idaho.gov.  This will allow you to access Taxpayer Access Point (TAP) to file and pay the Idaho taxes; multiple states use this same TAP system.  If you are tired of doing this yourself maybe you should consider upgrading your systems and automating the whole process.  Use the right tools for the job. 

We have all heard, "You have to spend money to make money."  In business the money spent is often referred to as an expense.  What is an expense?  The IRS describes it as:  "Business expenses are the cost of carrying on a trade or business.  These expenses are usually deductible if the business operates to make a profit."  If you spend money to operate your company it is most likely an expense.  Some examples include:  advertising expense, rent expense, wage expense, office supplies and interest expense.  You want to increase income and reduce expenses.