Top 10 Reasons You Might Need Accrual Accounting

I spoke this morning in St. Louis at the Accounting Boot Camp on using accrual accounting for farm operations and why it is important.  To start off the talk, I came up with the Top 10 Reasons why you might need accrual accounting:

• 10. You think working capital has something to do with politicians in Washington DC.
• 9. You think that Quickbooks is a story about NASCAR.
• 8. You think current ratio is something to do with electricity.
• 7. You think ROA is a rock band from the 1970s.
• 6. You think that finished goods is something that Aunt Martha made for Christmas.
• 5. You think long-term refers to putting Uncle Bob in the nursing home.
• 4. You think the turnover ratio is something to do with NBA basketball.
• 3. You think that flow-through might be some type of laxative.
• 2. You think depreciation is something accountants suffer from.
• 1. You think that a debit is a card you use at the ATM.

Believe or not, I came up with all of these by myself (my favorite is number 7).  Although this list is designed to be humorous, the reality is that all farmers should consider using accrual accounting to manage their farm operation.  This is a process that can be easy to get started with, but takes time to fully implement.  In today’s environment of lower prices, it is even more important to know what your contribution margin might be and how accrual accounting can help you make more money (not cost you money).

Paul Neiffer, CPA