Bulletin #3020, Using QuickBooks™ for Farm Recordkeeping: Considerations for Getting Started
Bulletin #3020, Using QuickBooks™ for Farm Recordkeeping: Considerations for Getting Started (PDF)
Developed by Erin Roche, Crop Insurance Education Professional, and Tori Lee Jackson, Extension Educator, University of Maine Cooperative Extension.
Reviewed by Becky Adams, Austin Associates, EA Staff Accountant / QuickBooks ProAdvisor, Auburn, ME
For information about UMaine Extension programs and resources, visit extension.umaine.edu.
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Funding for this fact sheet was provided by the USDA Farm Service Agency, Increasing Access to Risk Management Programs through Record Keeping Education, Federal Award #: FA-ME-7-034.
Table of Contents
- Choosing the Right Fit
- Desktop versus Online
- Setting Up a Company File
- Chart of Accounts
- COA Account Structure
- COA Tips
- Avoiding Common Pitfalls with QuickBooks™
- References
Farms of all types are choosing QuickBooks™ for their business accounting purposes. QuickBooks™ is a computer-based software program developed by Intuit® for small to medium-sized businesses. QuickBooks™ offers an efficient and organized method for monitoring the cash flow of a farm business. QuickBooks™ makes it easy to generate reports such as the Profit and Loss Statement and Balance Sheets which can help with end-of-year tax prep. QuickBooks™ uses a double-entry system meaning every transaction is recorded twice—usually as a debit and a credit, making it a “self-balancing” approach to bookkeeping1. The software works for both accrual and cash methods of accounting and allows for reporting using each method. When QuickBooks™ is set up to accurately reflect the different enterprises, revenue streams, and expenses of the farm it becomes a powerful tool. The objective of this fact sheet is to focus on a few of the aspects that often create barriers for new users such as evaluating the different versions of QuickBooks™ available and setting up the Chart of Accounts (COA) to be reflective of the farm business.
Choosing the Right Fit
The variety and types of QuickBooks™ versions available can be overwhelming and confusing. QuickBooks™ isn’t a one-operating system-fits-all application. In fact a different software package exists for Windows and Macintosh operating systems. Select the version specific to your system. Note that Intuit® releases new versions of QuickBooks™ each year. Selecting the latest version is recommended, but you should be able to use it for years to come. There are also two different types of QuickBooks™ — a Desktop type and a cloud-based Online type.
Desktop versus Online
There are various factors to consider in choosing between Desktop and Online. Desktop is one-time, downloadable software whereas Online is cloud-based meaning it can be accessed wherever there is an internet connection. Unfortunately, the Desktop and Online types are not identical; they look and navigate quite differently and these features are outlined in Table 1. Lastly, those in the market for QuickBooks™ will notice that there are a variety of versions available for Desktop and Online. Many farmers have had success using the Pro and Simple Start versions. Review the features of each, and, if you work with an accountant — seek their perspective on which type and version of QuickBooks™ they prefer to work with.
| Consideration | QuickBooks™ * | ||
|---|---|---|---|
| Desktop | Online | ||
| Available for Windows and Macintosh? | Yes | Yes | |
| Cost | One-time fee | Monthly fee | |
| Internet connection | Not required but recommended | Required | |
| Log-in | From computer | From computer or web-enabled device | |
| Access | Only from the computer the software is downloaded onto | Cloud-based; multiple users can access from cloud | |
| User interface | More features; easy to navigate2 | Less features; more difficult to navigate2 | |
| Automatically download bank transactions? | Yes | Yes | |
| Backup | User must create and save backups | Automatically backed-up on the cloud | |
| Allows more than one user at a time? | One user included; option to add two more (at cost) | Yes | |
| Do you want QuickBooks™ to… | |||
| Be accessible from a smartphone or tablet? | Not possible | Possible | |
| Import Square sales directly into QB? | Possible with 3rd party integration software (at cost) | Yes, using the Sync with Square app (free) | |
*As of January 2019.
Setting Up a Company File
After QuickBooks™ has been downloaded the user will be prompted to set up a company file. A company file will contain the financial information about the business. Here are a few key areas to consider:
- Industry: for a farm business select Agriculture, Ranching, or Farming. This will select the default accounts generally related to the farm business and those that will show on the Schedule F income and expense accounts3.
- Business organization: choose your type and QuickBooks™ will select the tax forms associated with the organization.
- Set an appropriate start date: the start date will depend on a few factors. When it’s early in the year choose the first day of your current fiscal or calendar year because this will mean less historical transactions to enter. If beginning with QuickBooks™ later in the year, it may be good to start at the beginning of an accounting period, such as the first of the month, because this will save time on entering historical transactions4.
- Selecting features: during the set-up, QuickBooks™ will also prompt you to decide on a number of features such as creating invoices, tracking inventory and time. Many of these features you’ll need but some may be extraneous. Think carefully about your business needs and accept what you need at the time. You can always re-select these features later. Keeping it simple is a good rule of thumb.
Chart of Accounts
The Chart of Accounts, often referred to as the COA, is the foundation of the QuickBooks™ accounting system because it is a list of accounts that are relevant to your business. Setting up the COA correctly from the beginning will give you the power to understand the profitability of the business. Failing to do so will mean the reports generated may be inaccurate.
| Account Name | Account Type | Balance Total |
|---|---|---|
| Sales | Income | |
| → Farmers market sales | Income | |
| → Wholesale sales | Income | |
| Other Income | Other Income | |
| → Crop Insurance Proceeds | Other Income | |
| → Fuel Tax Credits | Other Income | |
| Veggies purchased for resale | Cost of Goods Sold | |
| Direct Operating | Expense | |
| → Fertilizers and lime | Expense | |
| → Storage and warehousing | Expense | |
| → Freight and trucking | Expense | |
| Administrative | Expense | |
| → Professional services | Expense | |
| → Insurance fees | Expense | |
| → Internet/website fees | Expense | |
| Land/Tenancy | Expense | |
| → Rent | Expense | |
| → Utilities | Expense | |
| Fixed Asset | Fixed Asset | |
| → High tunnel | Fixed Asset | $15,000.00 |
| → Farm equipment | Fixed Asset | $50.000.00 |
| Owner’s equity | Equity | $100,000.00 |
| Long term liability | Long term liability | |
| → Mortgage | Long term liability | $100,000.00 |
| → Equipment loan | Long term liability | $50.000.00 |
| Savings account | Bank | $12,000.00 |
| Credit card | Credit card | $3,000.00 |
| Interest expense | Other Expense | |
| Ask My Accountant | Other Expense | |
| → indicates a sub-account. | ||
COA Account Structure
By selecting Agriculture, Ranching, or Farming during the initial company set-up, the options will be modified to provide a set of income and expense accounts that match the Schedule F tax form. QuickBooks™ has “default” Account Names but these can and should be modified by the user to provide more detail to the user. As new accounts arise or changes occur, accounts can be added or edited on the fly. Table 2 lists some of the different account names and types included in QuickBooks™. There are two main account types and these represent what is on the Balance Sheet and the Income and Expense Accounts. Each Balance Sheet account has its own register to track transactions and balances by account. The Balance Totals are available for assets, liability and equity accounts4. The Income and Expense Accounts track the source of the company’s income and expenses. The Income and Expense Accounts do not have their own register and thus there are no Balance Totals.
COA Tips
- Keep the COA short and organized. Adding sub-accounts, such as “farmer’s market” and “wholesale” to parent accounts such as “sales” can provide more information about which sales channels are most profitable without making the list of accounts too lengthy (Table 2). What if you want to track sales by specific enterprises such as eggs sales versus vegetables sales? In this case, Class Tracking should be used to track revenue by product type. Visit the Preferences tab to turn “on” Class Tracking.
- Avoid assigning the wrong type of account to a new account. This is a common mistake that may result in accounts showing in the wrong reports. For example, an account that should show in the Balance Sheet may appear in the Profit and Loss Report if it has been mislabeled.
- Enter correct starting balances. When transitioning from another recordkeeping system to QuickBooks™ decide on a date to restart your books such as the first day of the current fiscal year. Find the beginning statement for each bank statement, credit card and loan. This will help when entering the correct beginning balances for the balance sheet items.
- Use the Ask My Accountant account. To code questionable transactions that should be revisited with a professional.
Avoiding Common Pitfalls with QuickBooks™
Before adopting a new recordkeeping system such as QuickBooks™, it is important to step back and consider the big picture. A “good” record keeping system is one that is simple, reliable and understandable to others. It is not uncommon to get off on the wrong foot by overlooking a few key items that can put holes in your recordkeeping system and distort the farm’s financial picture.
- Reconcile your accounts. The accuracy of your record keeping system is only as good as the accuracy of the records used and how consistenly records are entered. Get in a routine. On a daily basis, take the time to enter income and expenses. Schedule time aside every week to pay bills and once a month to reconcile your accounts. Every transaction in QuickBooks™ must be checked and matched to bank records in order for the register to be accurate. This not only means your bank statements but also loans and taxes. For managing transactions that occur every month for the same amount such as an internet bill, QuickBooks™ has a Memorized Transactions option to automate the transaction entry.
- Don’t Co-Mingle Personal and Work Finances. When first starting a business it’s common to take money from personal savings to make purchases, or, to use one credit card for household and business purchases. Keep personal and business purchases separate as much as possible. If personal money is used for start-up costs then categorize it as a loan. Open a bank account or credit card that is strictly used for farm purchases. If you must use personal money, record it using the Journal Entry Module in QuickBooks™.
- Back Up Your Company File. On a daily basis save a backup of QuickBooks™ on an external hard drive or thumb drive in order to protect against a computer crash. Also, because transactions in QuickBooks™ are linked it is often better to fix mistakes through editing instead of deleting transactions.
- Ask for Help When Needed. Having a bookkeeper or accountant assist in setting up QuickBooks™ can be money well spent and time saved. Many accountants are willing to help you set up your COA from the beginning to ensure you are recording the appropriate data. Look for assistance from someone who has a QuickBooks ProAdvisor certification.
References
1 McConnon, J.C., and French, F.M. 2002. Keeping Your Business on Track, Bulletin #3004. University of Maine Cooperative Extension.
2 Shanks, J. 2016. The Farmer’s Office: Tools, Tips and Templates to Successfully Manage a Growing Farm Business. Gabriola Island, BC, Canada: New Society Publishers.
3 Schraufnagel, S., and Vanderlin, J. 2008. Farm Accounting Using QuickBooks™: User’s Manual. University of Wisconsin Extension. Retrieved from https://farmanswers.org/Library/Record/introduction_to_farm_accounting_using_quickbo
4 BDH Global Advisors. (2017, June 15). One of The Most Common Quickbooks™ Mistakes. [Blog post]. Retrieved from https://bdhglobaladvisors.com/one-of-the-most-common-QuickBooks-mistakes/
Information in this publication is provided purely for educational purposes. No responsibility is assumed for any problems associated with the use of products or services mentioned. No endorsement of products or companies is intended, nor is criticism of unnamed products or companies implied.
© 2019
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