Page 39 - Account for Ag - 2019

CH 4] Ledgers 4-3

ACCOUNTS COMMONLY USED
The specific accounts used by any agricultural firm to record transactions will vary from one firm to
another. However, in any business, the accounts used depend upon the assets owned, the debts owed, and the
information to be secured from the accounting records. It is customary to arrange accounts in the ledger in the
same order in which they are listed on the accounting statements. Current asset accounts precede fixed asset
accounts; all asset accounts come before liability accounts; equity accounts are last in order. If a loose-leaf
ledger is used, any new account needed as the result of any transaction can be readily inserted into its correct
place. Knowing that accounts vary, the following are common.
ASSET ACCOUNTS. For meaningful records to be kept of a firm's assets an individual account is
needed for recording the increases and decreases in each kind of asset owned. Some of the more common
asset accounts are Cash, Accounts and Notes Receivable, Prepaid Expenses, Machinery and Equipment
Accounts, Buildings, Land Improvements, Land, Grain, Hay, Feed, Seed, Fertilizer, Supplies, Market and
Growing Livestock, Raised Dairy, Breeding and Work Stock, Purchased Dairy, Breeding and Work Stock.
Cash. Increases and decreases in cash are recorded in an account called "Cash." This account consists of
money or any media of exchange that a bank will accept at face value for deposit. Cash usually includes coins,
currency, checks, postal and express money orders, and money on deposit in a bank or banks. Increases and
decreases in both the cash on hand and that on deposit in the bank are recorded in a single Cash account.
Accounts and Notes Receivable. Goods and services are commonly sold on the basis of a promise to pay
at a future date. Such sales are known as "sales on credit" or "sales on account" and are evidenced by a sales
or delivery receipt; these are known as Accounts Receivable. Individual accounts receivable are increased by
sales on credit and are decreased by the customer's payments. Since it is necessary to know the amount
currently owed by each customer, a separate account must be kept for each customer. Each account carries the
name of the customer whose purchases and payments are recorded. 4
A formal written promise to pay a definite sum of money at a fixed future date is called a promissory
note. When amounts due from others are evidenced by promissory notes, the notes are known as notes
receivable and are recorded in a Notes Receivable account. As it is necessary to know the amount currently
owed on each note, a separate account must be kept for each. Each account carries the name of the maker of
the note for whose purchases and payments are recorded.
Prepaid Expenses. Prepaid expenses are items that are assets at the time of purchase but are expensed as
they are consumed or used. The unused portion is therefore still available for use and thus an asset. Prepaid
Insurance, Office supplies, and store supplies are examples. Other examples include prepaid rent, prepaid
taxes, and prepaid wages. Each type of prepaid expense is normally accounted for in a separate account which
carries the name of the item, the increases and decreases of which are recorded therein.
Prepaid Insurance. Fire, liability, crop, hazard, and other types of insurance protection are normally paid
for in advance. The amount paid is called a "premium" and may give protection from loss for one to five
years. The money paid for insurance which is protection against disaster over a future time is not actually
expensed until the insurance portion is used up (over time). Thus insurance, being prepaid, is an asset. The
unused portion can be cancelled and redeemed for its cash value.
When insurance premiums are paid, the asset "prepaid insurance" is increased by the amount paid; and the
increase is normally recorded in an account called "Prepaid Insurance." Day by day, insurance premiums
expire, and at intervals insurance policies are examined; the insurance that has expired is calculated; and the
balance of the Prepaid Insurance account is reduced accordingly.
Office Supplies. Pens, pencils, paper, stamps, stationery and like items are known as office supplies.
These are assets when purchased, and continue to be assets until consumed. As they are consumed, the
amounts consumed become expenses. Increases and decreases in the asset "Office Supplies" are commonly
recorded in this account.
Store Supplies. Wrapping paper, cartons, sacks, string, and similar items used by a store are known as
store supplies. Increases and decreases in store supplies are usually recorded in an account of that name.
Machinery and Equipment Accounts. Increases and decreases in such things as tractors, trailers, discs,
harrows, a pickup truck, a swather and bailer, a livestock sprayer, typewriters, desks, chairs, and other
equipment having long lives are commonly recorded in an account called "Machinery and Equipment."

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