Page 15 - Account for Ag - 2019

CH 1] Introduction 1-7

machine methods; and not all computer programmers are adequately familiar with pen and ink records.
Primarily, the computer replaces the pen and ink as the recording medium, taking the drudgery out of the
recording. Second, few schools will allow beginning accounting students the luxury of computer time for
accounting. And last, for students who will start, own, or manage an agricultural business, one small enough to
use a pen and ink system, the pen and ink methods apply just as they are taught.

THE COST PRINCIPAL IN RECORDING TRANSACTIONS 1
The business transaction determines the value to be used in accounting. This value is the price agreed upon
between the buyer and the seller in the transaction; it measures the amount shown on the accounting record. For
example, if 30 acres are purchased as an addition to a business operation at a cost of $50,000, that amount is
used in the accounting records. The seller may have been asking $60,000 for the land up to the time of sale; the
buyer may have planned to pay $40,000 for it; the land may have been assessed at $35,000 for property tax
purposes, and another buyer may offer to purchase the same parcel for $75,000 the day after the sale is
concluded. These values have no effect on the accounting records. The transaction price, $50,000, sets the value
of the land in the accounting records of the purchaser.
If the purchaser should decide that it is better for him to sell the parcel at $75,000 to the new buyer than to
use it himself, then there is a new transaction that sets a new accounting value for the new buyer. The property
appears on the accounting records of the new buyer at $75,000 because that is the price paid for the parcel.
Or, assume the purchase in 1980 of 1,000 shares of Ralston Purina stock at $13 a share and the purchase of
1,000 shares of the same stock in 1990 at $47. Assume also that the stock may be sold at $70 a share on
December 31, 1996. On the accounting summary of December 31, 1996, the 2,000 shares would be listed at the
actual cost of $60,000 ($13,000 + $42,000). It is true that the 2,000 shares could have been purchased in 1980
for
$26000, that they would have cost $94,000 if all had been purchased at the same time in 1990, and that they
could have been sold for $140,000 on December 31, 1996; nevertheless, the amounts actually paid are the values
used in the accounting records. It is only by recording the prices of the actual transactions of the owner that
accounting records can have satisfactory stability.

PROPERTY AND BUSINESS OPERATIONS
The use of property is essential to conducting any business. A place for the business must be provided in a
building that is owned or rented and real property needs to be owned or rented for farming. Equipment adapted
to the activities of the business must be owned or leased. If goods are sold, they must be purchased,
manufactured or raised and kept in stock prior to sale. If services are rendered, the equipment and supplies used
in rendering the services must be available for use. Wherever there is business, property is found.
Through the sale of commodities or services, business operations usually produce funds that may be used to
purchase additional property as the business expands. These funds constitute an important element in the total
property of the business. If a business is conducted in such a way that its total ownership increases, the business
is said to be successful. In contrast, if its operations result in a decrease in its ownership, the business is
considered to be unsuccessful.
A custom agricultural implement manufacturing business that grew from a one-man shop on the farm of a
Moline resident to a huge corporation employing thousands of people is an example of successful business
operations and the accompanying increase in property. A five-and-ten-cent business that grew from a small store
in a small town in Vermont to a world-wide enterprise with departmentalized stores in every large city is another
instance of expansion in business and property. Many of the large business firms in existence today began years
ago as small enterprises. It should not be concluded, however, that only the giant enterprises are successful.
Moderate-sized and small business enterprises also render valuable services and often earn substantial profits. It
is the small business that is the major employer in the United States and not the large business firms.
The use of property in the operation of a business should be noted. Property is something of value that is
owned. Every unit of property has value, is owned, and its ownership gives to its owner certain rights, called
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