Page 41 - Account for Ag - 2019

CH 4] Ledgers 4-5

Production Loans. A unique payable is the production loan. This payable is utilized to finance the
production of a cropping or growing season. This type of loan may be six months to eighteen months in duration
and is evidenced by a Promissory Note to pay. The crop or livestock serve as the asset to secure this loan, and
when sold, the proceeds satisfy the loan.
MORTGAGES PAYABLE. A mortgage payable is a long-term debt incurred for the purchase of real
estate for which the creditor has a secured prior claim against some one or more of the debtor's assets. Mortgage
payments may last from seven years to forty years. A mortgage is an instrument whereby a lien is created upon
real estate or whereby title to real estate is reserved or conveyed as security for the payment of a debt or other
obligation. An account called "Mortgages Payable" is commonly used in recording the increases and decreases
in the amount owed on a mortgage.
EQUITY ACCOUNTS
Many transactions affect an owners’ equity in a business by either increasing the equity or decreasing the
equity. These transactions include the owner's investment, withdrawals of cash, withdrawal of other assets for
personal use, income earned, and expenses incurred and payed. Of these, the most numerous and more important
are income and expense transactions.
In order that information regarding the various kinds of increases and decreases in owner equity can readily
be secured, differing owner equity accounts are used; one for each kind of increase and decrease. Among these
accounts are the Capital Account, Withdrawals Account, Income Account, and Expenses Account.
CAPITAL ACCOUNT. As an individual invests money in a business, that investment is recorded in an
account carrying his name and the word "Capital." For example, an account called "Jim Platt, Capital" is used in
recording the investment of Jim Platt in his farm. In addition to providing a place for recording the original
investment, the Capital account also records the permanent increases or decreases in owner equity.
Withdrawals Account. Usually as one enters into business, it is expected that the business will earn a 4
profit or net income. This income is expected to be sufficient to meet the expenses of the business and pay the
personal living expenses of the owner. Often, during the accounting year and before an income is earned, it is
necessary for the owner to withdraw money for personal living expenses. Sometimes these withdrawals are
based on anticipated or projected earnings. These withdrawals reduce in like amounts both the assets and the
owner's equity. As these withdrawals are taken in anticipation of sufficient income to make good the
withdrawals, such withdrawals are called "withdrawals in anticipation of income" and are recorded in an
account carrying the name of the proprietor and the word "Withdrawals." For example, an account called "Jim
Platt, Withdrawals" is used to record Platt's withdrawals in anticipation of income. The Withdrawals account is
also known as the "Personal" account or the "Drawing" account from which Draws are made.
Income Accounts. Sales of merchandise, crops, products and services increase owner equity. Actually, over
time, the owner equity is increased when total sales exceed expenses and decreases when expenses are greater
than total sales. When revenues exceed expenses, a profit or net income is earned. Earning a net income and
avoiding a loss is the primary objective of a business. In order for the owner or manager to insure a profit they
must have detailed information as to each kind of revenue earned. This information is secured by providing a
separate account for each revenue source as transactions are completed.
Recording income in separate accounts require a number of accounts in any business. Additionally, not all
businesses have the same income sources; consequently it is not possible to list all income accounts. However,
as examples, these are offered: Calf Sales, Hay Sales, Revenue from Repairs, Produce Sales, Rental Income
Earned, Interest Earned, Commissions Earned, Cull Cow Sales, Tomato Sales, Broiler Sales, Pig Sales, Lamb
Sales.
Expense Accounts. As any business is engaged to sell its products, expenses are incurred in the normal
course of business. An owner's equity is decreased by the expenses incurred during the course of business
activity. However, this decrease in equity can be limited by sales exceeding expenses. To optimize profitability
in revenue earning activities it is important for the owner or manager to have information as to each kind of
expense made against each income area. This information is secured by providing a separate account for each
expense source as transactions are completed.
Recording expenses in separate accounts require a number of accounts in the business and need to correlate
to the income accounts. As examples of expense accounts the following are offered: Depreciation of Machinery
and Equipment, Insurance Expense, Utilities Expense, Alfalfa Expense, Barley Expense, Buildings-Roads-
Fences Expense, Repairs Expense, Office Supplies Used, Advertising Expense, Office Salaries, Labor Expense,
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