Account Categories

Agrifocused_Blog 2 - Account Categories

Account categories, also known as the chart of accounts are the categories we sort our income and expenditure as well as assets and liabilities into. At the beginning of the financial year it is a good exercise to review them to see if they are fit for purpose. 

It’s a bit like a goldilocks scenario. Daddy bears chart of accounts is too big, Mamma bears chart of accounts was too small but Baby Bears chart of accounts was just right. It’s time to look over yours with a view to streamlining to make invoice coding (selecting the correct category) and budget review easier. 

For some simple steps to review more info and an outline of what you can consider, look at your emails or subscribe here. 

How to review your chart of accounts. 

  1. Start with a printed copy – Colour minded people might like a few highlighters on hand, ruler, rubber and a pencil. Look over a few older reports, what categories have a balance under 5% of total expenditure?
  1. What needs to be removed or consolidated? Some items might be able to be grouped under one category. Do you need to isolate the cost of wool packs and other shearing expenses or could they be grouped together? Could the cost of soil testing and agronomy be grouped together? Can office supplies and subscriptions be combined? You know your own business best. 
  1. What needs to be added or separated? To keep track of some expenses, and to easily identify the relative performance of some enterprises, you may find it worthwhile to separate some expense line items. For example, separating contracting costs associated with livestock from contracting costs associated with cropping could be worthwhile. Crop insurance is variable in nature and may be worth separating from fixed insurance costs like property and machinery insurance. Is it worth separating Repairs and Maintenance on Machinery from Repairs and Maintenance on your infrastructure?
  1. Consider how accounts could be grouped, either by ordering or using some grouping or classification capacity within your accounting system. Grouping works really well when reviewing budget items. It allows us to concentrate on cost and profit drivers through the year and ignore items which are essentially locked in for a budget period, like loan repayments. 
  1. Investigate the capacity of your accounting program. Most accounting programs have the ability to establish sub accounts so you may have a parent account for livestock health, and then be able to further separate drenching, vaccination and preg testing costs if you wish to. Other program have the ability to group items of income and expenditure into enterprises or groups. You might have one for livestock and one for cropping, or one for a property in a particular geographic location etc. Most programs have online training videos you can work through, however your time is your most valuable asset. Get some prices for some one on one training focusing on what you want to learn. It might be more effective. 

    If you use Xero you may want to explore a few functions.

    Inventory Items – Xero can track items or quantities of certain items sold or purchased. You may set up items for things like different classes of livestock, or different grades of grain. Just a tip, unless you want to make life very complicated, you don’t want to “track” the items. This involves setting up opening balances and doing stock takes. Good for fixed inventory for a shop in town selling chemical or chainsaws, not so good on a farm where we create the inventory.
    Tracking Categories – You can set up two different tracking categories with up to 100 different tracking options. For example, you might want to split costs between three different enterprises. Your tracking category would be “enterprise” and your options could be “cattle, sheep, stud stock”. Alternatively you might like to allocate a cost to a particular farm or property. Perhaps they are run under one ABN, however you would like to report on the relative performance of each landholding.

    Remember, unless you are going to make a decision based on the outcome of the information, it can add a lot of work, without much benefit.
  1. Email your accountant with your proposed changes, some may need to be separately identified for GST or taxation purposes. 
  1. Make sure GST allocations are entered correctly and always take a backup before you start. 

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