I am having trouble working our how to handle livestock and produce accounts.
The usual situation in primary production in Australia is that the producer buys and sells livestock and produce through an agent. The agent renders a sales advice for sales made on behalf of the producer, which includes disbursements made on the producer’s behalf (freight etc.). When the producer buys livestock, the agent issues an invoice for the purchase plus other costs involved. Usually the producer has arranged finance through a third party or through the agent. The costs are funded by the finance provider and the proceeds of sales are remitted to the finance provider. If there are surplus funds, these may be remitted to the producer, or may remain as a credit in the finance provider’s account. The producer may need to add funds if the limit of the finance facility is reached. This may be done by payment of the unfunded balance to the agent, or to the finance provider, depending on the arrangement in place. Interest on the facility may be paid directly by the producer, or may be added to the finance balance. The producer may make payments to the finance provider to reduce the funded balance if there are funds available.
How should the finance provider’s and the agent’s account be set up? It seems the finance provider is acting like a bank. I am having problems setting the account up this way, as it doesn’t show up on the balance sheet. If I set it up as a liability account, the invoice transactions can’t be allocated to it.
I am obviously missing something here, and would be most grateful for any help, or feed back from anyone who has managed to work out how to handle this type of situation.
If you set the finance provider up as a bank, the balance of that account will be summarized under the control account, Cash at bank. If you want the finance provider to show separately, set up a custom control account and assign the Finance provider account to that control account. This would be very much like setting up a credit card, as explained in this Guide: https://www.manager.io/guides/7035.
Your relationship to the finance provider has not been completely described, however. It is possible you have no accounting relationship with them, especially if all transactions flow through the agent, who is clearly a supplier. But if you do, they seem most like a credit card, that is, a source from which to pay for or receive current transactions involving the agent, and with which settlement occurs at a later date.
For the Agent’s Invoices, both sales and purchases, these would be transactions within the FP’s “Bank Account”. Such that, when the Agent sells, that would be a FP Receipt and when the Agent buys that would be FP Payment.
You would not setup the Agent as a Customer or a Supplier as “you” don’t have any direct transactions with them, they don’t pay you (give credit) and you don’t pay them (give credit).
Any funds transferred between the FP and your own bank account would be Inter-account transfers. If you set up the FP’s “Bank” account as a custom control account, then you can transfer it between being a BS > Asset or BS > Liability based on the balance.
This may or may not be true. As I said in my earlier response, the exact relationship with the FP has not been described fully. What I meant when I said @Outback246 might have no accounting relationship with the FP is that they are definitely neither a customer nor a supplier. Depending on the exact relationship between FP and agent, the FP may not even be properly represented by a bank account in Manager. That is, the financing relationship might exist between agent and FP, not between producer (@Outback246) and FP. Even if the FP functions in a way that can be treated in Manager as a bank account, transactions could appear in the FP bank account without the FP being a customer/supplier/payer/payee. (The same is true of any bank account.) Such third-party financing relationships can be complex, as you know.
This contradicts what @Outback246 wrote: “When the producer buys livestock, the agent issues an invoice for the purchase….” That certainly sounds like a supplier. And if the “agent renders a sales advice for sales made on behalf of the producer,” that sounds like a customer-generated sales invoice (subject to the exact meaning of the term sales advice). The question is whether the producer is buying and selling livestock from/to the agent or the agent is only an independent sales representative. We’d need to know more about the contract under which this relationship operates.
Farmers have stock (cattle, sheep etc). The details of sales / purchases are normally handled by a “Stock agent” or “Stock broker”, just as the details of real estate sale / purchase are normally handled by a real estate agent and land broker. The sales / purchases themselves typically occur at an action. There are other cost associated with sales / purchases such as transport to and from the market.
All of these cost and any profit from sales are all costs and income for the farmer. The stock agent doesn’t buy or sell stock for themselves rather they act as agents for farmers.
A separate issue is the financing of stock purchases, a major farm asset. Some will fund it from their own reserves, but many will borrow money to buy stock. The money can be borrowed through all normal sources (bank, finance company, private loan) or the stock broker can organize the loan.
The best way to represent the loan in Manager will depend on how many separate loans a farming business has and details of the financial arrangement for each loan. Multiple fixed amount loans vs single loan with an an overdraft facility up to a fixed amount.
@Outback246 to enable more meaningful advice on how best to structure your Manager business, could you please give an overview of how your business organizes it’s stock funding (number of loans, fixed or variable amount).
Thank you all for very useful responses. As I thought, it raised more questions, and has helped me focus on the relationships from an accounting perspective. I will try to clarify the relationships of the parties involved.
Under the Cattle Trade Rules (2013) title to the livestock passes from the owner to the buyer on payment. The Agent has no title, and only facilitates the sale and purchase. The agent issues a sale or purchase tax invoice for the transaction including any costs and disbursements (yard fees, government levies, transport, insurance, commission etc) to the seller and the buyer or their agent, depending on whether the buyer and seller are using the same agent. Settlement terms are usually 7 days.
Finance arrangements if required are sometimes handled by the Agent via their own in-house facility subject to finance terms and agreement. In others cases, an independent lender will provide a flexible facility up to an agreed amount. The usual form of agreement is for the lender to pay the agent the full amount of the invoice and the agent remits the proceeds of sales to the lender. Depending on circumstances, the producer (ourselves) may make payments to the lender to reduce the balance of the loan. We may also ask the lender to allow a portion or all of a sale to be remitted to ourselves.
The lender draws interest directly from our bank monthly.
I hope this makes it a bit clearer - it does look like the credit card style account would work, although the relationship with the agent is a mixed one. We do not have any dealing with the seller or buyer in the transactions.
So I take it in your case; stock purchases are financed by a single standing loan arrangement with your stock agent up to an agreed amount. The actual amount borrowed varying after each market you go to and any additional repayments you make. Interest is paid monthly by direct debit facility with your bank.
Perhaps in your limited interpretation, but yes it has - “If there are surplus funds, these may be remitted to the producer, or may remain as a credit in the finance provider’s account. The producer may need to add funds if the limit of the finance facility is reached.”
As for the rest of that section, the commentary is so convoluted that it contradicts itself…
You are only observing it as a contradiction because you are mixing up two different comments.
So to clarify, yes the agent is issuing an invoice for the purchase but the invoice is being settled by the FP, therefore, as the agent (in this case) is not extending credit (deferred payment terms) directly to the producer, there is no need for the producer to setup the agent as a supplier.
Credit card style or FP Bank - one and the same thing.
We use our agent’s in-house facility plus (currently) two other independent facilities. We keep a close eye on interest rates in the market, and are prepared to establish new lines of credit if beneficial.
Then you would setup each one individually under the Bank Account tab and then group them on the Balance Sheet using the suggested Custom Control Account titled “Livestock Finance”.
Thank you everyone who assisted in my query. It is one of the great advantages on Manager that we can get such willing help quickly. My problem is now solved.
Kind regards
peter
tab.