Keeping our spirits bright despite the news…
While cold outdoor temperatures bite at our finger tips, heads and toes, we can take comfort after work by sipping a hot cup of apple cider and we can ruminate over the days to come. Yet one cannot pleasingly plan or even dream of a prosperous future without keeping abreast of the often precarious challenges swirling around us. Today, many individuals and companies who embrace agricultural businesses, particularly, smaller size row-crop producers, livestock farmers, ranchers, and feed yard proprietors maybe swallowing another bitter pill in the months ahead, according to the latest reports from the U.S. Senate. Beyond our angst over the stalled U.S. Farm Bill and anxieties over the Food Safety Modernization Act, a new obstacle is facing our agricultural enterprises.
Here’s the deal: The U.S. Senate Committee on Finance, mirroring action by the U.S. House and Ways Committee from last spring, has announced the proposal of a rule change that would alter the way a number of agribusinesses handle their accounting practices—requiring many to move from cash-basis accounting to accrual-basis accounting. So what are the implications of this rule? The modification is viewed poorly by numerous organizations, like the American Farm Bureau Federation and Farm Financial Standards Council. They say the advised rule means that farmers could be required to pay taxes on their sold products for which they have not yet received payment! Indeed, this does seem unfair yet it’s a potential outcome when applying accrual accounting practices.
Here’s why it could happen: When you use accrual accounting instead of cash accounting, you record revenue whenever a transaction happens but not when you receive the cash. Thus, your income statement can look great even if you don’t have cash in the bank! Furthermore, if your customers are slow to pay, you may end up with lots of revenue but little cash. So this is how the accrual accounting method could easily effect your IRS filing for a fiscal year. (The benefit of accrual accounting, however, is that it tracks revenue and expenses better than cash-basis accounting since it includes Accounts Receivable and Accounts Payable information.)
Cost-basis accounting, on the other hand, seems fairer to farmers since you record all cash payments into your books when it is received, but it doesn’t give you the means to track money due from customers at some date in the future nor can it track plans for future purchases. These cost-basis factors might have influenced the Senate committee’s decision to support accrual accounting although we don’t know this for certain. Still, it seems the Committee wasn’t considering the risk-factors associated with commodity-based businesses that can be heavily impacted by unpredictable situations, like an emergency capital outlay or crop failure that wipes-out expected payments for orders.
Considering the special nature of agribusiness, the Farm Financial Standards Council believes the cash-basis method currently allowed should be retained; otherwise, they fear the new rule would subject agricultural producers to larger swings in income due to extraordinary market changes that could happen by year’s end in any given year.
To add salt to this potential wound, if inflicted, the accrual rule would apply to all agricultural enterprises with over $10 million in annual gross receipts, and it would also affect smaller operations that have aggregated their farm-related businesses together. So if it’s determined a collective-group earned more than $10 million in gross receipts; then, each related business would be obligated to use accrual accounting too (even if their individual gross receipts are far below $10 million).
If you have questions or are concerned about how this U.S. Senate proposal may impact your business, a start-up venture in the works, or a friend’s farm, please share this news with them. Equally important, contact your members of Congress, and let them know your position on this potentially unfair ruling as it is currently written. Your voice is important and needed!
…and letting ‘Siri’ keep our hearts light!
While Congress brings us chilling news that could hamper the growth of agriculture, Carey Blake of the Farm Press Blog published a comical story on November 21 about Siri’s opinions of our agricultural world. Blake posed several questions to Siri, the digital goddess of Apple. Here are some of the questions and amusing answers from Siri (those with iPhones can ask Sir these questions too!):
Q. What are California almonds?
A. I couldn’t find any info on the home runs for California.
Q. What foods are healthy to eat?
A. Picazzo’s Organic Station Kitchen just down the road.
While Siri’s database mind needs a bit of enlightenment, her heart is in the right place. Sometimes she’s very accurate, for example, Blake asked “Does California have enough water?” She replied: California is in a drought and does not have enough water naturally.
My favorite follow-up question to Apple’s star digital assistant: “Are you a carnivore?” Siri said, I’m sorry. I’m afraid I can’t answer that.
Happy holidays to Siri and everyone connected to CCCC!