Wide variations in actual net farm income occur from year to year due to fluctuations in production and prices. Tax management adjustments in sales and expenses are made in an effort to level taxable income as much as possible from year to year. Depreciation schedules are computed with tax consequences in mind. They may or may not adequately prorate costs for the purpose of farm business analysis. Records for tax reporting purposes are important, but they do not give as much information about the business as is needed to make effective management decisions.
Farmers face many questions in the management of the farm business.
Records alone will not solve these problems. But a farmer who maintains and studies an adequate set of records can usually handle such problems better than one who does not. Many farm records are kept primarily, and in some cases solely, for income tax information purposes. By adding additional farm business data, they can provide valuable management information. Income tax reporting rules require some farm business records.