Posting Farm Production into QuickBooks Inventory - Part 2

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Most US-based farming and ranching operations use cash accounting, and the majority prepare market-value balance sheets for purposes such as borrowing operating capital. A big hurdle these agricultural businesses face in using QuickBooks, is how to get inventories of things the farm or ranch produces into QuickBooks—and assign estimated market values to them—in a way that is compatible with cash accounting.

In our Part One article I described how to get farm production represented in QuickBooks as inventories, by setting up Soybeans as an Inventory Item and establishing the inventory quantity and value for it. In this Part Two article we will look at some of the management information available to anyone who uses Inventory Items for keeping track of farm production inventories.

Management Information and more

Using Inventory Items for tracking inventories and sales makes it possible to do a number of "standard" inventory activities like having up-to-date inventory information available at any time, having the asset value of inventories appear automatically on balance sheet reports, and so on.

Using the Inventory Item type also opens up a lot of possibilities for doing things that can improve management control of the business or can contribute a great deal of management information, like:

  • Tracking cash forward contracts. Along with Sales Orders and Jobs, you can track contracted quantities and dollar amounts, deliveries made on contracts, and the remaining unfilled quantities on each contract.
  • Tracking inventories in multiple storage locations. By structuring the Item list properly, you can have separate inventory records for any number of storage locations; for instance, soybeans stored in bins on different farms, and in commercial storage.
  • Finding the average selling price for a crop or group of market livestock, for any period of time.
  • Calculating total production and average yield of a crop or group of market livestock.

You can find details on implementing each of these activities in my book, The QuickBooks Farm Accounting Cookbook™, Volume II: Raised Farm Production Inventories, Sales, and More....

Estimating Production and Yield using Inventory Reports

Here is one example of how you can use inventory records to gather management information.

By simply (1) using the Soybeans Item for entering soybean sales, and (2) adjusting inventories when harvest has been completed, you will have stored all of the information necessary for estimating total soybean production and average yield for the year. Only a few reports are needed for gathering the information required for the calculation, so this is management information which is "almost free"—very little additional effort is required to get it, beyond normal day-to-day accounting activities.

The formula for calculating production over a period of time is:

Ending Inventory + Sales - Beginning Inventory = Production

where "beginning inventory" and "ending inventory" mean the inventory on hand as of the first and last dates of the time period being considered. For the 2016 soybean crop:

  • Ending Inventory is the quantity which was on hand at the completion of harvest.

Let's say that harvest was completed on November 11th, and the estimated quantity on hand then was 26,024 bushels—which may be any combination of weighed bushels, bin estimates, quantities in commercial storage, etc. An inventory adjustment was entered, dated November 11th, to update the inventory quantity for the Soybeans Item as of that date:

  • Beginning Inventory is the quantity that was on hand when harvest began, on September 2nd, estimated at 500 bushels.

Estimating the inventory or taking a physical count is not absolutely necessary. If you believe your QuickBooks inventories were reasonably accurate when harvest began, you could simply get an inventory report on or prior to that date to find out the beginning inventory. (Just be sure to use the same date as the beginning date for the sales report described below.)

Here's an Inventory Valuation Summary report (Reports > Inventory > Inventory Valuation Summary) for September 2nd, showing that the soybean inventory then was 528 bushels:

  • Sales is the quantity sold between the beginning and ending inventory dates; or in this example, or from September 2nd through November 11th (sales made during harvest).

You can get total sales for the period from a Sales by Item Summary (Reports > Sales > Sales by Item Summary) or Sales by Item Detail (Reports > Sales > Sales by Item Detail) report, filtered to include only sales made between the beginning and ending harvest dates. (The report will—and should!—include all sales made between these two dates, regardless of whether they were sales of old crop or new crop soybeans, or whether they were sales from storage or hauled directly from the field to a buyer.)

Here is an example, showing that total soybean sales from September 2nd through November 11th were 3,244.5 bushels:

Using this information and a calculator, you can quickly find...

Total soybean production for 2016 was:

26,024 + 3,224.5 - 528 =  28,776.5 bushels

Average soybean yield, assuming 584 acres of soybeans were harvested, was:

28,776.5 bushels / 584 acres =  49.3 bushels per acre

Remember, when you get into the habit of using Inventory Items for farm production, you will realize a number of new opportunities for getting expanded management information accounting records in your QuickBooks.  Best of luck to you.

Acknowledgements

This article is mostly excerpted from Chapters 2 and 5 of The QuickBooks Farm Accounting Cookbook™, Volume II: Raised Farm Production Inventories, Sales, and More...,, by Mark Wilsdorf.

About the Author

Mark Wilsdorf has worked with QuickBooks users in agriculture since the 1980s. He was editor of AgriComp, the first national magazine for agricultural computing, has authored books about using QuickBooks in agriculture (The QuickBooks Farm Accounting Cookbook™ series), has done consulting work for Fortune-500 businesses serving agriculture, and has been the lead developer on several software projects for developing QuickBooks add-ons. He currently writes an agriculture-oriented QuickBooks blog at QBAgCenter.com.

For proof that Mark always has at least one foot in agriculture, you might look around his office at home....there you would find things like a folder of soil test reports, calf obstetrical supplies, a seed sample waiting on a germination test, a stack of machinery parts catalogs...and a lariat that he will never learn to use really well.

How cute are these Red Twin Calves? Do you realize that livestock like this represents a whole other form of farm (ranch) production? I mean, baby calves don't just appear out of 'thin air'! Perhaps Mark will write us an article on tracking livestock production sometime in the future. (Murph)