Page 42 - Account for Ag - 2019

4-6 Accounting for Agriculture CH 4]

Taxes Expense, Interest Expense, Feed Expense, Fertilizer Expense. Obviously the kind of expense recorded in
each of the above mentioned account is evident from its title.
THE CHART OF ACCOUNTS
The Chart of Accounts is simply a list of accounts by name, usually coupled, or identified with a code
designation in number, letter, or symbol, or a combination of these, for easy reference. The chart, then, is not
much more than an index, or an outline of the entire system of accounts. It is necessary to be fully familiar with
the names of the accounts in order to make journalizing and posting a speedier and more accurate procedure.
The basis for the establishment of the chart of accounts is a thorough understanding of the business itself.
In order to determine what specific accounts to set up for a particular agricultural firm, the owner should obtain
full and accurate answers to these questions:
1. What assets will I own in my business operation?
2. Can I assemble these assets into homogeneous groups?
3. What liabilities will I generally have?
4. Will I generally pay cash for my requirements, or will I require credit on special terms?
5. Shall I keep farm and personal records together with a personal account to segregate personal
withdrawals? YES!
6. From what sources will I have income?
7. Is it worthwhile to keep track of income by enterprises?
8. What expenses will I have which should be subject to careful scrutiny in order to help me control and
plan business operations?

While the answer to these questions will point the way to setting up accounts for the agricultural business
or farm, the owner may find it necessary to add or subtract accounts from time to time.

THE NUMBERING OF ACCOUNTS FOR ORGANIZATION
Accounts are kept in a book-like form, usually in a post binder of loose-leaf binder which facilitates easy
addition or subtraction of sheets. The book in which the accounts are kept is called the LEDGER. It is
customary to arrange accounts in the ledger in the same order that they are listed on the accounting statements
such as the balance sheet. As you recall the balance sheet is based on the formula that

ASSETS = LIABILITIES + EQUITY,

and that there is a general allocation of accounts in each. Assets include: (1) Current Assets, (2) Working Assets
and (3)Fixed Assets. Liabilities include:(1) Current Liabilities, (2) Working Liabilities and (3)Fixed Liabilities.
The Equity accounts include (1) the Owners Capital Account, and two very special equity accounts (2) Income
Accounts, and (3) Expense Accounts. These are illustrated below in Illustration 4-2:
Current asset accounts precede fixed asset accounts; all asset accounts come before liability accounts; equity

Illustration 4-2

100) ASSETS = 200) LIABILITIES + 300) EQUITY

110) Current 210) Current 310) Owners Capital

140) Working 240) Working 400) Income

160) Fixed 260) Fixed 500) Expenses

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