Farm accounting for beginners: what to track and why

Published Wednesday 1 April 2026

Table of contents

• What is farm accounting?
• How to get started with farm accounting
• Accounting for the way you run your farm
• Managing government schemes and regulations
• Tracking losses and profitability
• Choosing farm accounting software
• Consider hiring an accountant
• Simplify your farm accounting with Xero
• FAQs on farm accounting

Key takeaways

• Set up a comprehensive recordkeeping system that tracks receipts, bank statements, stock records, land use logs, and subsidy documentation to build a solid foundation for your farm accounting.
• Record all livestock movements including births, deaths, purchases, and sales in your accounting software to maintain accurate asset values and simplify end-of-year reporting.
• Document all losses from weather damage, livestock deaths, spoilage, and equipment damage to reduce your taxable income and support insurance claims.
• Use cloud-based accounting software with bank feeds, inventory tracking, and mobile access to automate routine tasks and gain real-time insights into your farm's financial performance.

Key takeaways

• Farm accounting differs from standard business accounting due to living assets, seasonal income, and weather dependency.
• Track land maintenance costs, livestock movements, and equipment depreciation as core accounting tasks.
• Stay informed about government subsidies and align your accounting calendar with official deadlines.
• Record all losses from weather, disease, or spoilage to reduce your tax liability.
• Use cloud-based accounting software to simplify tracking and improve financial visibility.
• Consider hiring an accountant for tax filing and major business decisions.

What is farm accounting?

Farm accounting is the process of tracking income, expenses, assets, and liabilities specific to how you operate your agricultural business. Unlike other businesses, farms deal with living assets, seasonal cash flow, weather-dependent outcomes, and government subsidies, all of which require specialised financial management. In fact, there are specific international accounting standards like IAS 41 Agriculture.

These unique factors make farm accounting more complex than standard business bookkeeping. However, with the right systems in place, you can manage your farm finances confidently and decide how to run your farm.

Here are ten key points to help you get started.

How to get started with farm accounting

Setting up a farm accounting system takes some initial effort but saves time and reduces errors in the long run. Follow these steps to build a solid foundation.

1. Build your recordkeeping system

Gather and organise the documents you need to track your farm finances:

• Receipts and invoices: for all purchases and sales
• Bank statements: reconcile monthly to catch errors
• Stock records: track livestock numbers, births, deaths, and sales
• Land use logs: document how you use each paddock or field
• Subsidy documentation: keep records of all government payments

Store documents digitally where possible to make searching and sharing easier.

2. Set up your chart of accounts

A chart of accounts organises your finances into categories. For farms, typical categories include:

• Income accounts: crop sales, livestock sales, subsidies, contract work
• Expense accounts: feed, veterinary, fuel, fertiliser, repairs, wages
• Asset accounts: land, livestock, equipment, buildings
• Liability accounts: loans, credit accounts, unpaid bills

Your accounting software will have a default chart of accounts you can customise for your farm, and you can look to groups like the Farm Financial Standards Council, which provides recommended standards for format and content.

3. Choose your accounting method

Decide between cash-basis and accrual accounting:

• Cash-basis: record income when you receive it and expenses when you pay them. Simpler for most small farms.
• Accrual: record income when earned and expenses when incurred, regardless of payment timing. Gives a more accurate picture of profitability.

Most small farms use cash-basis accounting because it's simpler. Check what your country's tax rules require, as some farms may need to use accrual accounting.

Accounting for the way you run your farm

Farming has its own set of accounting rules and things to consider. Understanding how to handle your farm's unique assets and operational factors is key to managing your finances accurately.

Your land is an asset

Agricultural land is one of your most valuable assets and, when properly managed, should hold or increase its value over time. Well-managed land holds its value, while land that isn't properly maintained can take years to restore, making ongoing maintenance costs essential to track.

Account for these common land maintenance expenses:

• Fertiliser: keeps fields productive season after season
• Irrigation: essential for growth, especially in dry climates
• Drainage: prevents crop rot and protects livestock health
• Soil pH management: maintains the right nutrient balance for your crops
• Weed removal: an ongoing cost whether manual or chemical
• Pest control: protects crops from damage and yield loss

Whatever it costs to maintain your land is likely money well spent. Record these expenses consistently to protect your most important asset.

Know your stock

Livestock tracking helps with accurate farm accounting because animal numbers change constantly through births, deaths, purchases, and sales. Every head has a financial value that affects your balance sheet.

Record these stock movements in your accounting software:

• Births: add new animals to your inventory with estimated values
• Deaths: remove animals and record the loss
• Purchases: track acquisition costs for new stock
• Sales: record income and remove sold animals from inventory
• Age progression: update categories as animals mature, which affects their value

Keeping accurate stock records helps you understand your true asset position and simplifies end-of-year reporting.

Understand depreciation

Depreciation reduces the value of your assets over time and can be offset against tax in most countries. This doesn't just apply to equipment; some livestock, such as dairy or breeding cattle, also have a depreciation period of five years under the General Depreciation System.

Track depreciation for these common farm assets:

• Machinery and vehicles: tractors, trucks, and harvesters depreciate through heavy use and technological advances. For tax purposes, the recovery period for new farm machinery is often five years under the General Depreciation System (GDS).
• Computer equipment: depreciates faster than most assets due to rapid technology changes; for example, according to IRS guidelines, computer software is generally something you depreciate over a three-year period.
• Hand and machine tools: typically have longer depreciation periods but vary by quality

Record each equipment purchase and apply the appropriate depreciation rate annually. Check your country's tax rules for specific depreciation schedules and allowances.

Managing government schemes and regulations

Government rules and subsidies affect your farm accounting. These can change often, so keep accurate records to stay compliant and make the most of available programmes.

Stay up to date with government subsidy schemes

Government subsidies financially support farmers and can significantly affect your bottom line. Most countries offer various schemes to support agriculture, but these programmes change frequently, so stay informed.

To make the most of available subsidies:

• Track current schemes: check government agricultural websites regularly for updates
• Record all payments: treat subsidies as income and document them in your accounts
• Plan ahead: align your farming strategy with available support programmes
• Align your calendar: use government definitions for livestock ages and reporting deadlines to simplify compliance

The more you understand about available subsidies, the better you can plan how you operate and maximise your returns.

Record changes in land use

Land use changes affect your asset values and must be recorded in your accounts. When you change how you use your land, update your records promptly.

Common land use transitions include:

• Converting pasture to crops: adjust land valuations and record any livestock sales
• Restoring native vegetation: track government payments for conservation schemes
• Planting forestry for carbon capture: record scheme income and updated land classifications
• Clearing land for livestock: account for stock purchases and land preparation costs

Record these changes as they happen to keep your accounts accurate and simplify tax reporting.

Tracking losses and profitability

To run a successful farm, you need a clear view of your financial performance. This means accurately accounting for unexpected losses and consistently measuring your profitability.

Account for loss

Recording losses reduces your taxable income and ensures you only pay tax on actual profits. Weather events, disease, and other factors can destroy crops or livestock, and these losses should be documented in your accounts.

Record these types of losses:

• Weather damage: crops destroyed by storms, drought, or flooding
• Livestock deaths: animals lost to disease, extreme weather, or accidents
• Spoilage: hay, grain, or other produce that becomes unusable
• Equipment damage: machinery destroyed or damaged beyond repair

Document the value of each loss and keep supporting evidence such as photos, veterinary reports, or insurance claims. This reduces your tax liability and supports any insurance claims you make.

Keep track of your profitability

Tracking profitability helps you understand whether your farm is financially sustainable and where to improve. Farm profitability can be complex to measure because seasons vary and production cycles are long, and for tax purposes, there are even specific rules for when what you do is presumed to be for profit.

Common ways to measure farm profitability include:

• Economic farm surplus: combines multiple metrics to rate how well your farm performs overall
• Monthly profit tracking: shows current performance; use other methods to predict future cash flow
• Production ratios: measures like cost per milk solid help dairy farmers track efficiency
• Revenue per hectare: indicates land productivity; check that you've included all underlying costs

Using accounting software gives you the clearest picture of profitability over time. You can track trends, compare seasons, and forecast future performance based on historical data.

Choosing farm accounting software

Farm accounting software simplifies how you manage finances by automating routine tasks, connecting to your bank, and providing real-time insights into how you operate. The right software saves time and helps you decide better.

When choosing farm accounting software, look for:

• Bank feeds: automatic import of transactions reduces manual data entry
• Inventory tracking: manage livestock and crop records in one place
• Mobile access: update records from anywhere on your property
• Reporting tools: generate profit and loss statements, cash flow forecasts, and tax reports
• Integrations: connect with farm apps and supplier systems

With Xero's cloud-based accounting, designed for small businesses including farms, you can manage your finances from anywhere. With direct bank feeds, mobile access, and the ability to integrate with farm-specific apps, you can manage your finances from the paddock or the office. Xero, for example, integrates with over 1,000 third-party apps, including specialised tools like Figured to track what it costs to produce. You can use Xero to handle the accounting tasks covered in this guide, from tracking depreciation to recording stock movements and subsidy payments.

Consider hiring an accountant

Hiring an accountant can save you time and money, even though it adds to your costs. A good accountant understands complex agricultural tax rules and may reduce your tax bill enough to offset their fees, especially when navigating rules like the one limiting what you can deduct for prepaid farm supplies to 50% of other farm expenses for cash-method farmers.

Consider hiring an accountant if:

• Your farm is growing: more transactions mean things get more complex
• Tax rules confuse you: agricultural tax has specific things you can deduct and timing to consider
• You'd rather farm: time spent on accounts is time away from your core work
• You're deciding on big changes: buying land, expanding how you operate, or planning succession benefit from professional advice

If you manage your own accounts, use software that simplifies things and makes it easy to share data with an accountant at tax time. Many farmers handle day-to-day bookkeeping themselves and bring in an accountant for annual reviews and tax filing.

Simplify your farm accounting with Xero

Farm accounting involves more than tracking income and expenses. You're managing living assets, seasonal cash flow, government schemes, and weather-dependent variables, all of which you need to oversee carefully.

With the right systems in place, you can stay on top of your farm finances and confidently decide how to run your farm. Whether you manage your books yourself or work with an accountant, cloud-based software brings everything together in one place.

With Xero's accounting platform, you can track stock movements, record depreciation, manage subsidies, and generate the reports you need for tax time. Ready to simplify your farm accounting? Get one month free and see how Xero works for your farming operation.

FAQs on farm accounting

Here are answers to common questions about managing farm finances.

What expenses can I claim as a farmer?

Common deductible farm expenses include feed and seed, veterinary costs, fuel, fertiliser, equipment repairs, insurance, hired labour, professional fees, and vehicle expenses for farm use. Depreciation on equipment and buildings also reduces your taxable income.

Are farm subsidy payments taxable?

Tax authorities consider most government subsidies and farm payments as taxable income. How they're treated depends on your jurisdiction and the type of payment. Consult an accountant familiar with agricultural tax law to ensure you report subsidies correctly.

Should I use cash or accrual accounting for my farm?

Cash-basis accounting is simpler and works well for most small farms, as you record income when you receive it and expenses when you pay them. Accrual accounting provides a more accurate picture of profitability, and your tax authority may require it for larger operations. How your country regulates tax may influence this choice.

How much does it cost to set up farm accounting?

Costs typically include subscribing to accounting software, potentially consulting an accountant to set things up initially, and time invested in learning the system. You offset these costs by seeing your finances more clearly, saving on tax, and making better decisions.

How often should I review my farm accounts?

Review your accounts monthly at minimum to track cash flow. During busy seasons like lambing or harvest, reviewing weekly helps you stay on top of expenses. Schedule quarterly sessions to review profitability more deeply and annual sessions with your accountant before tax time.