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Financial resources and functions of finance in an agricultural enterprise

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5 min read

ECONOMICS E

Distributive and Accounting-Control Functions of Finance

In everyday life and in production, finance is often perceived simply as cash or non-cash money. However, in economic practice, it is a mechanism for the distribution and redistribution of the value of a created product. Historically, this system emerged in the trading centers of Florence and Venice, when monetary circulation finally became separate from commodity circulation. For an agricultural enterprise, finance is a tool for forming special-purpose funds, distributing profit, and fulfilling obligations in a timely manner.

The essence of finance is manifested through two key functions: distributive and accounting-control. The scale of these processes within a country is assessed by the indicators of Gross Domestic Product (GDP) and national income. National income usually accounts for 70–80% of the Gross National Product (GNP). These macroeconomic benchmarks reflect the general structure of cash flows, in which the agricultural sector occupies its share.

  • GDP of Russia (2010) — 44,939,152.9 million rubles.
  • Share of the agricultural sector in GDP — 1,707,687.8 million rubles (3.8%)
  • National income from GNP — 70–80%

The distributive function ensures primary income for production participants and forms budgetary funds. In farm conditions, it is used to reimburse the spent means of production, pay wages, and form reserves for development. In other words, this very function allows directing the revenue obtained from the sale of the harvest toward the purchase of seed, fertilizer, and the preparation of machinery for the next season.

The accounting-control function works in inseparable connection with the distributive one. It serves as a universal tool for controlling production and product circulation. Financial analysis allows for the timely detection of disproportions in the expenditure of funds, identification of payment delays, and the prevention of inefficient spending at all stages of economic activity.

For the full implementation of the accounting-control function, an enterprise needs reliable operational, accounting, and statistical reporting. Systematic financial accounting and auditing are the primary means of strengthening production discipline in all departments of the farm.

Sources of Financial Resource Formation and Management

Financial resources of an enterprise are a totality of equity and borrowed funds, depreciation charges, and external receipts. They are intended for fulfilling financial obligations and ensuring expanded reproduction. At the stage of creating a farm, the initial authorized capital is formed through share contributions, joint-stock capital, founder funds, long-term loans, or budget subsidies.

In the process of current economic activity, the formation of financial resources occurs through internal and external sources:

  • profit from the sale of agricultural crops and other activities;
  • depreciation charges for fixed assets and intangible assets;
  • revenue from the sale of retired property;
  • targeted receipts and share contributions;
  • dividends, insurance indemnities, and other payments.

Untimely formation of financial resources or the misallocation of depreciation charges leads to payment delays, the inability to update the machinery and tractor fleet on time, and the failure to meet deadlines for technological operations in the field.

Effective movement of these funds is ensured by financial management — management system of finance for achieving the tactical and strategic goals of the enterprise in the market. Management is implemented through a financial mechanism, which includes specific forms and methods of organizing monetary relations, from operational accounting of daily expenses to long-term investment in the production base.

Management Mechanism and Directions for Using Financial Resources

The stability of an agricultural enterprise directly depends on how clearly the management system of cash flows is structured. To timely cover production tasks — from carrying out the sowing campaign to updating the agricultural machinery fleet — it is necessary to understand the structure of the farm's financial mechanism. It binds together market instruments, economic levers, planning methods, and the legal framework.

The structure of the enterprise's financial mechanism consists of four main elements:

  • Financial instruments: cash, securities, forward contracts, futures, as well as short-term and long-term investments (loans and borrowings), which are traded on financial markets;
  • Financial levers: product prices, interest rates, applied forms of settlement, as well as specific types of loans and credits;
  • Financial methods: planning, forecasting, lending, investment, and other forms of financial management;
  • Support: legal (codes, laws, Government resolutions, and Presidential decrees), regulatory (industry and departmental documents), and information (published reporting of enterprises and credit institutions, operational data from currency and food markets).

Formed monetary funds are spent on the current maintenance of the farm and the implementation of its development strategy. Rational distribution of these funds prevents cash gaps during the period of intensive field operations.

The use of the farm's financial resources is carried out in the following key directions:

  • fulfilling financial obligations: payment of taxes and fees, repayment of interest on loans, insurance payments;
  • allocating funds to capital investments and the development of the material and technical base;
  • acquisition of securities;
  • contributions to extra-budgetary funds and social funds, formation of internal enterprise funds in accordance with constituent documents, as well as charitable purposes.

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