Be a Rule Follower!
Ranchers know their choice of livelihood may not be an easy life filled with weekly paychecks, Christmas bonuses, unlimited labor and financial resources, but ranchers choose that live because that is the life for them. Ranchers would be bored to death living in a subdivision. Where would they park all of their trailers? Ranchers know there are many benefits to ranching for a living, but the real beauty of ranching is freedom of choice.
Continue reading “True Cost of Ranching”My area of expertise is in the ranching industry. I suspect most ranchers use the cash method. For my ranch, I use the cash method for tax purposes. The cash method is considerably less costly than the accrual method.
The IRS graciously allows most of us to use the cash method. Small business taxpayers. Effective for tax years beginning after 2017, the Tax Cuts and Jobs Act (P.L. 115-97) expanded the eligibility of small business taxpayers to use the cash method of accounting.
With that being said, I do use the accrual method for my ranching operation’s books. Cash method for the IRS and accrual for cost control. Ranching is a very competitive market, thus the margins are small. Without through accounting it is impossible to determine what your true costs are.
No one would sell a 1500 pound round bale of hay for less than what they have in it. It is easy to determine your fertilizer and net-wrap cost per bale. Not so easy to determine all of the many other incidental cost to produce that round bale. With a good team working together to keep accurate records of daily transactions, the accrual method of accounting will allow accurate cost reports for greater decision making.
A big part of ranching is inventory control. That includes hay and feed, fuel, raised cattle, purchased cattle, and equipment use. Every revenue stream should have a corresponding cost stream. Gross Profit may then be calculated. Overhead costs is everything else. The more of your costs that you are able to put into a corresponding cost stream, the less your overhead will be. Overhead is paid for out of Gross Profit.
Cost control requires the use of spread sheets and pivot tables for analysis. This is what accountants are for.
Brett Bickham, May 24, 2020
Clifton, TX
Tax time again for most of us. We all know you are taxed on your income past a certain amount. You may not realize you are not taxed on all of the money you received from the sale of a fixed asset. Only the gains on the sale of fixed assets are taxed! Most of the time the sale of a fixed asset results in a loss, which is deductible.
Remember, money put into the bank is not always income!
When you pull out you Visa card to make a purchase, It most certainly is an increase to your liability account, but it may be an asset as well. If the purchase is to maintain a business through the purchase of a repair & maintenance item, that is an expense. If the purchase is to add a fixed asset to your business, that is an asset.
Spending money is not always a bad thing. Expenses are a fact of life. Expenses take you backwards. Assets take you forward. Assets can be better than cash. The tool you purchased with your Visa card should make you money. The lunch you paid for with your Visa card lowered your net worth.
When you log your purchases into your register, it is easy to lose track if the transaction is an asset or expense. Purchases to build or raise something you will sell later, are assets. Your check register or Visa register has know idea if the transaction is positive or negative. Registers treat all transactions as negative.
That is why it is so important to have QuickBooks.
Brett Bickham, 1/12/2020
Clifton, TX
I have been asking myself this question for years. How long should I keep my tractor or any other item I am depreciating? I am not alone in this question. This debate has been around for as long as accounting has been around. Well maybe not. Accounting began in the 15th century to aid merchants in European and Mediterranean countries. Florence, Italy was a mecca for international trade back in the day. About that same time was the shift from Roman numbers to Arabic numbers. Depreciating capital assets came later.
Continue reading “Run It Into the Ground?”Fixed costs are the overhead costs of a business.
Amortization (charging to expense of the cost of an intangible asset). …
Depreciation. …
Insurance. …
Interest expense. …
Property taxes. …
Rent. …
Salaries. …
Utilities. …
The greater quantity produced, the lower fixed cost per unit. Fixed cost will include an expense debit each month. Fixed costs may, or may not, include a cash credit each month. Fixed costs are added to the General Journal by monthly adjustments.
Continue reading “Accounting for Short Term Assets”There are two options when starting a business. One is to have a lot of upfront capital and work until the money is gone. The better option, TWO, is to have an accountant closely watch your investment to make sure your return is adequate.
Give me a call at Rule Accounting and become part of the option TWO group!
Brett Bickham, 254-978-0001
Rule Accounting is a managerial accounting firm formed in 2017. I specialize in managerial and tax accounting for family ranches.
Rule Accounting derived their business name from all of the many rules in accountancy. Bookkeeping is the day to day process of journalizing the temporary accounts of revenue and expenses. There are six major steps in the accounting process. The bookkeeping part is step two. Accounting goes into greater detail and includes the Balance Sheet accounts of Assets, Liabilities, and Retained Earnings (Capital). Accounting rules include domestic rules, international rules, and generally accepted accounting principles (GAAP). The domestic rules, or standards, are developed by the Financial Accounting Standards Board, or FASB. The international rules are developed by the International Financial Reporting Standards, or IFRS. The international rules are similar to the USA rules for the most part. Livestock rules are different abroad but here in the USA those differences don’t affect most of us.
Continue reading “Rule Accounting”When ranchers raise their own replacement heifers, the money spent on raising those heifers cannot be expensed. Meaning, the feed that is paid for out of the ranch account is not to be deducted, as an expense, come tax time. Of course, there are many other cost related to raising heifers too. None of those cost are to be deducted as business expenses.
Continue reading “What Most Ranchers Do Not Know About Their Expense Write Offs”