The Farm CPA
Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
FFSC - Day 2 Session 3
Aug 01, 2012
The first session in the afternoon was a panel discussion of three professors from the University of Illinois on using cash versus accrual income.
There is a myth that cash versus accrual "averages out over time". With surgery of about 1,000 farms from 2001 to 2006, they found:
1. Cash versus accrual was about 50% different in each year and about the same percentage difference for a three and five year totals sit this study indicated it does not average out.
2. Crop inventory changes and differences in depreciation was usually the largest difference.
3. Current ratios have increased from an average of about 2 to 3. Debt to asset ratios have dropped from about 30% to less than 20%. Debt levels have gone up but values have gone up faster. Returns on assets have jumped around due to the volatility of crop and land prices.
4. Income per acre has increased from an average of about $100 to over $300 in 2011.