Page 38 - Account for Ag - 2019

4-2 Accounting for Agriculture CH 4]

ILLUSTRATION 4-1

Cash
Debit (Dr) Credit (Cr)
3,000 500
2,500 1,000
4,000 2,500
300
900
4,300 9,500 5,200

footing). Finally, by subtracting the credits from the debits ($9,500 - $5,200), the balance of the cash account,
$4,300, is obtained. This amount is placed on the debit side of the account since the debits exceed the credits in
this case. If a balance sheet were prepared at this time, the amount of cash to be shown thereon would be
$4,300.
CLASSIFICATION OF ACCOUNTS
As one recalls from the introductory section the value of all items owned by a farm business represents its
assets. The sum of all the assets, if there are no liabilities, equals the net worth or equity of the farm business;
the owner's equity. Liabilities are claims of outsiders, against the farm assets; the debts owed by the farm. The
difference between the money value of all assets and the money value of all liabilities is the net worth, capital,
owner equity, or equity. Assets may consist of Cash, Livestock, Feeds, Machinery, Equipment, Fences,
Buildings, Land, and other property owned. Liabilities may be debts owed, such as, Accounts Payable, Notes
Payable, or Mortgage Payable. Owner Equity is shown in the farmer's capital account, which is usually headed
by the owner's name and the word "Capital". For instance, "John Newell, Capital:" Because these accounts
usually remain open from year to year, and carry varying money values, they are designated PERMANENT
accounts.
Income accounts are used for recording various kinds of income to the farm. One farm operator may have a
poultry ranch and may wish to keep separate records of income received from sales of eggs, poultry, culls,
fertilizer, empty sacks, and any other source from which there may be income. Therefore an ACCOUNT for
EACH income source is needed. Likewise, the owner should be interested in knowing how much money and
other values are paid for the expenses of operating the poultry ranch. Expenses that would be incurred include
possibly Labor, Feed, Taxes, Transportation, Supplies, Electricity, Water, Insurance, Depreciation, and others.
By setting up an account for each of these expenses, at the end of the fiscal year one can analyze spending to
determine if the business is being operated efficiently. Also at the end of the fiscal year, or at an earlier date, the
owner may wish to determine the results of the operation to find out how much profit or how much loss has
been made. Generally at the end of the fiscal year, the farmer will "close his books" and determine his profit or
loss.
The basis for the Operating Statement or Profit and Loss Statement is the group of Income and Expense
accounts. In other words, the difference between Income and Expense is the profit or the loss. Income and
expense accounts are NOT carried over from year to year. They are closed out each year, and re-opened as
blank accounts for the coming year. They are used over and over, until the paper is used up, but the figures that
are taken into consideration in determining profit or loss are those figures applicable to the current fiscal year
only. For this reason Income and Expense accounts are known as TEMPORARY (Equity) accounts.

ACCOUNT SUMMARY
Permanent Accounts:
ASSETS: Cash, Livestock, Machinery, Equipment, Land, Buildings
LIABILITIES: Accounts Payable, Notes Payable, Mortgage Payable.
EQUITY: The Owner(s) Capital Account.
Temporary Accounts (Equity Accounts):
INCOME: Hog Sales, Crop Sales, Poultry Sales.
EXPENSES: Labor, Feed, Seeds, Taxes, Fuel, Insurance.
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