Evaluating Computerized Farm Accounting Systems

Many farm and ranch managers have discovered that the amount and quality of information they use to make decisions contribute directly to the success of their businesses. The common thread that runs through various aspects of farm business management and decisionmaking is information about both financial and physical characteristics of the farm. The agricultural business environment requires equally sophisticated methods of analyzing that information.

A few short years ago, farmers, ranchers, and small business managers generally had only two bookkeeping choices: (1) keeping their own record-book or ledgers, annually summarizing the information for reporting to the lender and IRS, and (2) using bookkeeping services provided by accountants or faun organizations, such as farm business management associations, which provided the farmer/client with financial reports monthly, quarterly, or annually. (See Part VII, Chapter 5 for more information on farm management associations.) However, inexpensive personal microcomputers have provided farms, ranches, and small business firms with computerized bookkeeping that was previously available only to large corporations.

When farmers first became aware of the potential of microcomputers for farm accounting and farm decision aids, software for such applications was extremely limited. However, as numerous agricultural and general accounting and bookkeeping software packages became available, farm managers had the formidable task of selecting the best package for their specific needs.

A few years ago, farmers and ranchers had limited bookkeeping choices. (USDA Photo by Bill Kuykendall, 032-7-8)

Selecting Accounting Software

The farm manager choosing accounting software has several selection strategies. The simplest alternative is to buy the accounting software package that the computer salesperson or vendor recommends. While this decision is easy, the vendor may not carry an accounting package designed for agricultural applications, or the vendor may lack the accounting knowledge needed to provide support.

Another alternative is to adopt the accounting package that other farm managers in the area are using. Though their experience in setting up and using the package may be helpful, this alternative has its drawbacks. Even though the package may be inexpensive, it may be more costly in the long run than a more expensive yet more suitable package which meets the individual's needs.

A third alternative is to select an accounting system based on "expert" evaluations printed in various publications. The "experts," however, impose their personal values and needs on their recommendations. Moreover, how an accounting software package operates in a descriptive publication typically differs from how it operates on the computer.

A fourth strategy is to adopt some combination of the first three strategies. However, to minimize the risk of selecting the wrong package, a comprehensive approach is best. This fifth strategy differs from the fourth in that, in addition to using bits and pieces of the above approaches, it involves "hands-on demonstration" or "testing" of the accounting system.

Requirements and Resources

Inexpensive microcomputers really have not changed the financial information required, but they have made it easier to generate that information.

Thus, the first step in considering an accounting package is to fully identify objectives, information requirements, and expected improvements from computerized accounting activity. Major users of the information include lenders, IRS, and the farm manager. Consider the resources available to computerize the accounting functions. If the firm already has a computer system available and has no intentions of purchasing an additional one, then the capabilities of that system may limit the range of accounting software for consideration. If the business has an IBM-compatible system, many of the accounting packages available should operate on the available hardware. Firms that do not have a computer system must consider the costs of the hardware as well as the software.

Basic general ledger (GL) accounting systems which provide an income statement, balance sheet, trial balance, and other standard general ledger financial reports are quite inexpensive. However, many firms want additional software features to complement the basic GL accounting system. Additional features may include check-writer, enterprise, payroll, accounts payable, accounts receivable, inventory, and asset or depreciation management programs. The additional modules are usually available for additional costs and, in many cases, result in substantial expenditures for software.

The knowledge and experience of the individual doing the computerized accounting must also be considered. For example, a double-entry accounting system requires that the user understand basic double-entry accounting to use it properly.

Today, numerous general accounting software packages are available to aid the farm manager. Extension staffers Kay Hargis and Dan Cotton test equipment at the Boone County, MO, Extension Center Model County Office, where new microcomputer technologies are demonstrated. (USDA Photo, 89BW1214)

Many farm and ranch businesses also want their computerized accounting systems to generate crop and livestock enterprise information. Such systems will require improved recordkeeping and will, in fact, increase the amount of information that must be recorded. For example, one may have to start recording fuel used by each enterprise, quantity of labor used for each crop and livestock enterprise, and number of tillage practices for each field or pasture.

Identifying and Selecting Software

An important step in selecting software is to identify the accounting pack-ages available. Publications, vendors, Extension Agents and Specialists, and acquaintances can help to identify available software. Such a search may identify 15 to 30 accounting systems. Most people would want to quickly sort through them, select three to five systems that seem best suited to their individual needs, and examine these systems more closely.

Some packages may be eliminated because they do not meet the farm's hardware and/or computer operating system requirements. The knowledge and experience of the individual who will be doing the bookkeeping may dictate the purchase of a single-entry cash record system. In other instances, the philosophy of the farm manager and/or the education and experience of the computer operator may result in only double-entry accounting systems being viable options. Furthermore, whether the firm intends to maintain cash or accrual-based accounts can serve to screen accounting software.

Using a Checklist

Use a checklist to evaluate the three to five accounting packages that the farm will consider seriously. Answer the following questions from the general checklist as well as the four specific checklists for components of your farm's accounting system. Use these checklists for each package under consideration. By comparing the responses to these questions, evaluate the relative merits of each package.