Records are important for many reasons:
1) Proof: The IRS can ask for proof of income, expense, and inventory items reported on tax returns.
2) Decision Aids: Farm managers use records to construct balance sheets, cash flow and income statements, and other financial aids for making more informed decisions in such areas as profitability, labor needs, machinery purchases, adding or deleting enterprises, size expansion, etc.
3) Institutional Requirements: Many lending agencies and governmental bodies require financial and/or production records to be maintained over a number of years. For example, the government farm program requires certain production and acreage records to be reported and maintained by the farm owner. Also, "planning" for conservation compliance and other aspects of soil and water management essentially become historical records over time.
4) Environmental Regulations: Increasingly, farm owners are being asked to keep records about chemical use, livestock waste applications, and irrigation water use on their farms.
These are just a few reasons of why record keeping is important to farm businesses. There are many different methods of keeping and maintaining these records, and the farm manager should decide on the system which best fits his or her farm situation.
