Economics: February 2004

Every farm or ranch has some type of information system. The kind of information, and how it's used, determines the success of an operation. The quality of the information gathered by a system only has value if it is used to make decisions.

Any basic information system should include a cash accounting system with depreciation schedule, financial statements, cattle and feed inventories and production records to measure production performance.

In most operations, the cash accounting system can be handled adequately by computer programs such as Quicken. This program, and others, can provide the information to meet tax needs and the basic data for preparing financial statements.

However, information prepared for tax purposes does not measure the profitability of a business or its financial position. As identified by the Farm Financial Standards Guidelines, the following statements should be the minimum needed to document financial position and performance:

1. Balance Sheet ? with both cost and market valuation,
2. Accrual adjusted income statement,
3. Statement of cash flow,
4. Statements of owner equity.

Another segment of the information system should be inventories. An accurate cattle and feed inventory is essential in measuring production performance and completing financial statements. A complete inventory by category of cattle (cows, bulls, heifers, stockers, etc.) should be done at least twice a year. If only done twice, the inventory should be taken at the beginning of the fiscal year and at the beginning of the breeding season. This inventory should include a record of all deaths, purchases, sales and movements among pastures.

Management accounting focuses on providing data and reports with information for decision makers. Management accounting reports for different segments of the business provide an understanding of the components of the business so that desired changes can be made with better business understanding and less risk. Financial accounting deals with historical recording of financial activities, position and performance, particularly as it relates to tax and external financial reports. A management accounting system is designed, operated and staffed to provide management information to support the following internal business management functions:

• planning activities,
• decision making (marketing, investment and resource use),
• measuring commodity cost and production performance,
• control and monitoring the business.

These areas of information should be addressed in each operation. Too many operations have only had tax-based information from which to make decisions. You cannot make management decisions from tax information because it tells only a part of the story.