Farm accounting made simple: Your guide to managing finances

Published Wednesday 17 December 2025

Table of contents

• Farm accounting basics
• Tax benefits and considerations for farms
• Budgeting and cash flow management
• Your land and livestock as assets
• Government subsidies and compliance
• Record keeping requirements
• Equipment depreciation and asset management
• Managing seasonal losses and profitability
• Choose the right farm accounting software
• Streamline your farm accounting
• FAQs on farm accounting

Key takeaways

• Implement cloud-based farm accounting software to automate livestock valuations, crop tracking, and equipment depreciation while providing real-time financial visibility from any location.
• Utilise government tax benefits like instant asset write-offs and Farm Management Deposits to improve cash flow, while maintaining detailed records of subsidies and compliance requirements for audit purposes.
• Track living assets systematically by recording livestock births, deaths, and sales alongside land maintenance expenses like fertiliser and irrigation to ensure accurate asset valuation and tax compliance.
• Establish seasonal budgeting practices that account for concentrated harvest income and weather-related risks, using specialised metrics like Economic Farm Surplus and cost per unit ratios to measure true farm profitability.

Farm accounting basics

Farm accounting differs fromstandard business accounting because of unique agricultural factors:

• Living assets: Crops and livestock change value as they grow, mature, and reproduce
• Seasonal income: Revenue concentrates in harvest periods rather than steady monthly sales
• Weather dependency: Natural conditions directly impact profitability and asset values
• Government regulation: Subsidies, compliance requirements, and tax benefits require specialized tracking
• Asset complexity: Land, equipment, livestock, and crops each follow different valuation rules

Tax benefits and considerations for farms

Farming is a critical industry, and governments often provide specific tax considerations to support it. Understanding these can have a big impact on your profitability.

For example, schemes like the instant asset write-off allow eligible farms to immediately deduct the cost of assets like new machinery, with a current limit of $20,000 for eligible businesses until 30 June 2026. This can provide a significant boost to your cash flow.

Tax rules change, so it is a good idea to work with an adviser to make sure you are making the most of all available benefits.

Budgeting and cash flow management

A solid budget is your roadmap for the financial year, helping you plan for large expenses and manage seasonal income fluctuations. Many farmers use tools like Farm Management Deposits (FMDs) to manage volatile cash flow, with 90 per cent of surveyed members in one group calling them an important tool. With farming's inherent uncertainties, like weather and market prices, a budget gives you more control.

Effective cash flow management ensures you have the money you need, when you need it, whether for buying seed, paying staff, or investing in new equipment. Tracking your cash flow helps you spot potential shortfalls before they become a problem, so you can run your farm with confidence.

Your land and livestock as assets

Agricultural land is a non-depreciating asset that maintains or increases value when properly managed. You need to track land maintenance costs because poor management can take years to reverse.

Essential land maintenance expenses:

• Fertiliser: Maintains soil productivity and crop yields
• Irrigation: Ensures adequate water supply for plant growth
• Drainage: Prevents crop rot and livestock health issues
• Soil pH management: Balances nutrients for optimal plant growth
• Weed removal: Protects crops through manual or chemical control
• Pest control: Manages insects and diseases that damage crops

As economies change, so does the type of farming people carry out on the land. If your use of land changes, even if it's just a few fields, be sure to record it in your accounts. Make sure the land value is adjusted if necessary and that you account for the sale or purchase of any stock.

Livestock inventory tracking records the number, type, and value of animals on your farm because stock numbers change constantly through births, deaths, and sales. Accurate records ensure proper asset valuation and tax compliance.

Essential livestock records:

• Birth registrations: New animals added to inventory
• Death documentation: Stock losses for tax deductions
• Sales tracking: Animals sold and revenue generated
• Age classifications: Animals moving between age categories
• Breeding records: Reproductive activity affecting future stock

Government subsidies and compliance

Government subsidies are financial payments that support farmers, though it's notable that in terms of direct support as a percentage of income, Australia ranks second lowest in the Organisation for Economic Co-operation and Development (OECD), receiving far less than the average. Subsidies change frequently, so tracking them is essential for accurate accounting and strategic planning.

Key subsidy management steps:

• Monitor changes: Check government websites regularly for subsidy updates
• Track payments: Record all direct subsidy payments as income
• Plan production: Align farming activities with current subsidy opportunities
• Maintain records: Keep documentation for tax compliance and audits

Government livestock classifications define animal ages and categories for tax and subsidy purposes, which may not match biological reality. Align your accounting calendar with government definitions to simplify record-keeping and avoid calculation complications.

Why government classifications matter:

• Tax compliance: Official age categories determine tax treatment
• Subsidy eligibility: Government program use specific livestock classifications
• Simplified accounting: Using official dates reduces complex calculations
• Audit preparation: Consistent definitions match regulatory expectations

Record keeping requirements

Good record-keeping is the foundation of successful farm accounting, especially given the variety of business structures used. In one period, 57 per cent of farmers reported income through partnerships alone. It's not just for tax time; it's about having a clear view of your farm's financial health. Keeping accurate records of all income, expenses, and inventory changes helps you make smarter business decisions.

Whether it's tracking invoices, recording livestock numbers, or logging equipment purchases, organised records give you the data you need to budget effectively, monitor profitability, and plan for the future. Using accounting software can automate much of this process, saving you time and reducing errors.

Equipment depreciation and asset management

Equipment depreciation allows you to deduct the declining value of farm machinery from your taxable income over time. Understanding depreciation rules reduces your tax bill and helps plan equipment purchases.

Common depreciation of farm equipment:

• Tractors and machinery: Heavy use in all weather conditions accelerates wear
• Computer equipment: Technology advances make systems obsolete quickly
• Hand tools: Long-lasting items with extended depreciation periods

Keep track of what you buy and account for its depreciation each year, noting that primary producers may be able to claim an immediate deduction for capital expenses on assets like fencing and fodder storage.

Managing seasonal losses and profitability

Loss accounting records weather-related damage and crop failures so you get fair tax treatment and a clearer picture of your farm’s resilience. Documenting losses ensures you do not pay tax on destroyed assets or unrealised profits.

Weather-related losses include:

• Crop destruction: Storms, hail, or drought damage to growing crops
• Livestock losses: Extreme weather causing animal deaths
• Feed spoilage: Rain damage to stored hay or grain
• Equipment damage: Weather-related machinery breakdowns

Farm profitability measures how efficiently your operation converts expenses into profit using specialised agricultural metrics.

Multiple measurement methods provide different insights into farm performance:

• Economic Farm Surplus: Comprehensive performance rating using multiple accounting metrics
• Monthly profit tracking: Real-time performance indicator for immediate decisions
• Cost per unit ratios: Industry-specific calculations like working costs to milk solids
• Revenue per hectare: Land productivity measurement for comparing field performance

Choose the right farm accounting software

Cloud-based farm management provides real-time access to financial data, market information, and weather updates from any location. Internet connectivity enables automated data feeds and streamlined farm operations.

Essential online farm tools:

• Market monitoring: Live stock prices and commodity trends for planning decisions
• Production tracking: Kill sheets and milk solid prices for revenue calculations
• Weather forecasting: Short and long-range predictions for operational planning
• Financial management: Cloud accounting with automated bank feeds and supplier integration

Direct connections to banks and suppliers eliminate manual data entry and provide real-time financial visibility, and automated calculations provide accurate long-term trends and enable reliable profit forecasting.

Streamline your farm accounting

Professional farm accountants handle complex agricultural tax rules and compliance requirements, often saving more money than they cost through tax optimisation and time savings.

Benefits of farm accountants:

• Tax expertise: Knowledge of agricultural tax deductions and timing strategies
• Time savings: Handles detailed record-keeping so you focus on farming operations
• Compliance assurance: Ensures adherence to changing agricultural regulations
• Cost justification: Tax savings often exceed accounting fees

DIY considerations: Self-managing requires significant time investment and ongoing tax law education.

Streamline your farm accounting with cloud-based solutions that handle agricultural complexities automatically. Modern accounting software addresses the unique challenges of farming operations while providing real-time financial visibility.

Key benefits of cloud-based accounting software for farmers:

• Automated tracking: Handles livestock, crop, and equipment valuations
• Tax optimisation: Built-in agricultural tax rules and depreciation schedules
• Real-time access: View financial data from field or office on any device
• Professional collaboration: Share data seamlessly with accountants and advisors

Ready to simplify your farm's financial management? Try Xero for free and see how cloud accounting can transform your agricultural business.

FAQs on farm accounting

Here are answers to some common questions about managing your farm's finances.

What is the primary purpose of farm accounting?

The main goal of farm accounting is to systematically record, classify, and analyse all financial transactions. This helps you manage farm income and expenses, stay compliant with tax laws, and make informed decisions to support long-term profitability.

What makes accounting software good for farms?

Good farm accounting software gives you accurate financial information in real time. Look for features like automated bank feeds, easy invoicing, expense tracking, and integrations with other farm management apps. Cloud-based software like Xero lets you manage your finances from anywhere, whether you're in the office or out in the field.

What is the instant asset write-off for farms?

The instant asset write-off allows eligible small businesses, including farms, to immediately deduct the full cost of certain assets rather than depreciating them over time. The eligibility criteria and threshold can change, so it is best to check the latest government guidelines or consult with an adviser.