Page 9 - Account for Ag - 2019

CH 1] Introduction 1-1

CHAPTER ONE: INTRODUCTION

Whether the business concern of an agricultural firm deals with primary production - farming, secondary
production - processing farm products, or tertiary production - retail marketing agricultural products, or
supplying goods and services to any of the three levels of production that business must prepare and retain
records of its business transactions. These records when properly itemized and arranged can be used to 1
determine the profitability of the business, prepare current tax returns and assist owners in obtaining loans.
These same records serve as an historical record of the business activity and allow the owner to plan future
allocations of resources.
ART OF ACCOUNTING
Accounting is an art. Because accounting's principle articles are numbers, many students consider it to be a
science -- with the same dedicated accuracy of engineers designing an engine. The numerical quantification of
accounting must indeed be accurately recorded and tallied. However, why, where and how transactions are
recorded are unique for each business, each entrepreneur. Such that each transaction must reflect the needs of
the business to manage resources, control business activities, plan future enterprises or borrow funds.
The art of accounting includes the recording and summarizing of business transactions and interpreting
probable effects on the activities of a business concern. Accumulated information is used in determining owner
equity, profit and loss from business activity, cost of production of individual enterprises and filing income tax
returns. All business transactions are an exchange of property or services involving two or more values; usually
an EXCHANGE of values. For the business community, whether farming or retail services, business is a never-
ending cycle of exchanges. The farmer who exchanges money for land, fuel, oil, fertilizer and seed so that a
crop may be grown and exchanged in the marketplace for money is said to be in business. To accomplish the
same task the farmer might exchange other items of value, or a promise to pay at a future time. In any case, this
exchange of values in a business transaction is fundamental to accounting. For the farmer, and any other agri-
businessmen, accounting is the art used to record the many transactions of the business, to summarize them and
to interpret their effects upon the affairs and activities of the business.

USE OF ACCOUNTING DATA
When a business conducts business, the transactions are recorded. Each recorded transaction constitutes
accounting data. This data when summarized and interpreted answer for the owner and manager many questions
such as: Was there a profit? What debts are owed? Who owes the business money? Where were earnings the
greatest? Which enterprise should be stressed? What is owned? Should inventory be reduced? Should culling be
stronger? Will the business be able to meet its debt service? Should a new enterprise be instituted? Can more
equipment be purchased or old equipment be replaced? What new strategy should be employed when marketing
our products?
Grantors of credit such as banks, supply companies that extend credit, and production credit association’s
use accounting data in answering additional questions such as: Are the earning prospects good? What is the debt
-paying ability? Have previous debts been paid promptly? What is a reasonable credit limit to complete the
production cycle? What risk is involved and how can it be limited?
Similarly, our governmental agencies use accounting data in regulating business activities, establishing
marketing orders, and collecting taxes. Labor organizations use accounting data to negotiate wage agreements
and working conditions. The investor utilizes accounting data when deciding when, where and how much to
invest in a business venture.

ACCOUNTING AND BOOKKEEPING
Many students confuse accounting and bookkeeping and see them as one and the same. Actually,
bookkeeping is only a part of accounting. Bookkeeping is the manual art of accounting.
A bookkeeper records the transactions of the business concern. On a family farm, the husband or wife may
perform the task of bookkeeper and record all transactions completed or they may hire a bookkeeper for this
function. But in a larger and more complex business, the bookkeeper may spend the day recording only one
kind of transaction, such as credit sales. This work is primarily clerical in nature.
The accountant's work goes beyond that of a bookkeeper. An accountant must be able to survey the
business as to kinds and numbers of transactions; what will be the uses of the accounting records; what is the
outlook for growth; when will equipment be replaced, etcetera. And from this survey, be able to design an
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