When You Can't Count on Your Accounting Program

Last month we compared the accounting power gleaned from management segments (usually called “cost/profit centers”) versus the “big bucket” accounting approach still used by many producers. This month we’ll switch to another, equally-important dimension: units of measure.

Accounting that counts dollars but not quantities can’t tell you much about your operation. Here’s why:

• Most everything in farming is purchased, sold, used and valued in standardized units of measure (bushels, gallons, tons, etc.)

• In order for accounting entries to drive inventories, quantities must be captured.

• A “per-unit” approach allows meaningful comparisons between segments and operations of varying scales.

• Units explain the source of variance from budgets.
Units of measure in the ag world are much more complex than most other businesses.

• A single transaction can incorporate dual quantities (head-pounds, wet bushels-dry bushels, tons-bales).

• Often the units of measure change between the point of purchase and application (bags-kernels of seed or gallons-ounces of chemicals).

• In addition to these “direct units” associated with accounting transactions, agriculture relies on a wide variety of “indirect units” (acres, animal capacity, hours).

While some of these indirect measurements can be “folded in” after-the-fact, direct units must be captured within the same transaction as dollars, accounts and centers. Numerous work-arounds (recording quantities in notation fields or separate quantity accounts) have been attempted in Main Street accounting programs, but the results literally don’t add up.