| Written March, 1995 |  |
File C6-32 |
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Evaluating Computerized Farm Accounting Systems
Ashley C. Lovell, CPA and extension economist, Texas A & M University, College Station, Texas
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. Another alternative is to adopt the accounting package that other farm managers in the area are using. A third alternative is to select an accounting system based on expert evaluations printed in various publications. 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. The fifth strategy uses bits and pieces of the above approaches. It differs from the fourth in that it involves hands-on demonstration or testing of the accounting system.
Comparative checklist for accounting software
Use a checklist to evaluate the three to five accounting packages that the farm will consider seriously. Use these checklists for each package under consideration. By comparing the responses to these questions, you can evaluate the relative merits of each package.
General features checklist
Compare the general features of this section to the farm manager’s needs and available resources (including the ability or inability to handle double-entry accounting). The list of accounting packages to consider may be shortened once these comparisons have been made.
- Is the package single-entry or double-entry?
- Does the package handle both cash and accrual accounting?
- Does the package support full enterprise records and reports?
- How time consuming and difficult is the initial software setup?
- How quickly does the system post transactions or find a previous entry?
- Are annual updates available?
- What support does the software vendor offer (phone, training, video cassettes)?
- Is a full-feature demonstration diskette available?
- Does the software interface with spreadsheet data bases and word processing software?
- What level of accounting and computer expertise is necessary for entering data and reviewing the accounting printouts?
- What are the hardware requirements to run the system?
- What are the data storage requirements (floppy diskette, hard disk, tape)?
- What is the full cost of the system, including all necessary modules and charges required for updates, telephone support, maintenance, and other such services?
General ledger checklist
The purpose of the general ledger (GL) is to provide the basic financial statements (profit and loss or income statement, balance sheet, and sources and uses of funds statement) as required. To evaluate the software package’s GL capabilities, consider:
- What is the maximum number of GL accounts the system can handle?
- Are the account numbers and names determined by the user?
- Can the chart of accounts be modified as necessary?
- To what extent can the financial report formats be changed through the accounts setup?
- Is it possible to use nonexistent account numbers when entering GL transactions?
- Is it a double-entry system? If so:
1. Does it generate a trial balance to verify the books are in balance?
2. Is it possible to enter and post unbalanced transactions?
- How simple is it to make correcting entries?
- Does it generate profit and loss statements and balance sheets using either actual value, market value, or depreciated value bases?
- Does it integrate with enterprise, accounts payable, accounts receivable, and payroll modules?
- Does it generate a sources and uses of funds statement?
Enterprising checklist
Some accounting systems (single-entry as well as double-entry) are able to track the expenses and sales associated with producing a commodity by using enterprise accounting. To evaluate the software package’s enterprise accounting capabilities, consider:
- Does it record expenses, income, and physical quantities for each enterprise, providing costs and returns reports for units specified by the user?
- Does it allow enterprises to remain active even if the books for the fiscal year have been closed?
- What is the maximum number of enterprises allowed?
- Does it provide for noncash sales between enterprises without affecting GL account balances?
- Can it generate consolidated costs and returns summaries for all enterprises and for each farm location?
- Can enterprise entries be made through the general ledger, accounts payable, accounts receivable, and payroll modules?
- Can budget versus actual reports be generated from budgets previously established for each enterprise?
- Can the system automatically allocate overhead to each enterprise using allocation rules specified by the user?
If the manager intends to select software that supports full enterprise accounting, a number of potential packages will likely be eliminated. It is not wise to give further consideration to general ledger software that provides some capability for enterprise, cost, or departmentalization accounting.
Accounts payable and payroll checklists
Besides the general ledger and enterprise modules, many farms can benefit from accounts payable, payroll, and depreciation modules. Typically, the public accountant maintains the depreciation schedule. To evaluate the software package’s accounts payable capabilities, consider:
- Will it run both cash- and accrual-based accounting?
- Does it list invoices by date due and indicate the amount of cash necessary to pay invoices?
- Does it post invoices to the GL as a batch or one at a time?
- Does it print checks and IRS 1099 reports?
- Does it provide for entering transactions resulting from daily cash-flow handwritten checks?
- Does it provide reports on vendor histories?
To evaluate the software package’s payroll capabilities, consider:
- Can it calculate payroll using either hourly wages or piece rate - whichever is greater?
- Does it automatically calculate all appropriate Federal, State, and local payroll taxes?
- If it has an accrual, double-entry system, are accrued taxes payable automatically posted to the GL?
- Will it handle employee advances and housing deposits?
- Does it print payroll checks and IRS W-2 forms?
- Does it automatically update the GL and enterprise modules?
- Does it provide employment history reports by specified date ranges?