CALIFORNIA
AGRICULTURAL EXTENSION SERVICE
CIRCULAR 124
August, 1942
RECORDS AND ACCOUNTS
FOR CALIFORNIA FARMERS
ARTHUR SHULTIS
CONTRIBUTION FROM THE
GIANNINI FOUNDATION OF AGRICULTURAL ECONOMICS
Cooperative Extension work in Agriculture and Home Economics, College of Agriculture,
University of California, and United States Department of Agriculture cooperating.
Distributed in furtherance of the Acts of Congress of May 8, and June 30, 1914.
B, H. Crocheron, Director, California Agricultural Extension Service.
THE COLLEGE OF AGRICULTURE
UNIVERSITY OF CALIFORNIA
BERKELEY, CALIFORNIA
CONTENTS
PAGE
Introduction 3
Basic principles 3
Personal affairs 5
Capital 6
Depreciation 7
Farming operations 9
Farm enterprises 11
The record year 11
Inventories of livestock, products, and supplies 11
Farm records 12
Cash record or cashbook 12
Eecord of noncash transactions, or journal 15
Cash journal 15
Ledger 18
Diary 19
Labor record 19
Pay-roll record 21
Service-unit records 21
Crop and field records 23
Livestock records 23
Inventory 23
Depreciation record 25
Personal or household accounts 26
Files and business papers 27
Statements 27
Farm profit and loss statement 27
The farm schedule for income tax 28
Net-worth statement 31
Statement of personal contributions and withdrawals 31
Annual summary of labor and field-power use 31
Annual summaries of livestock records 31
Enterprise profit and loss statement 33
Systems of farm records and accounts 34
System A, the simple cash record 35
System B, the farm record book 36
System C, the cash journal 39
Column headings for the cash journal 39
Using the cash journal 40
Annual summarization 41
System D, double-entry farm bookkeeping 41
System E, enterprise accounting 43
Hints on keeping farm records 43
RECORDS AND ACCOUNTS FOR
CALIFORNIA FARMERS
AETHUR SHULTIS^
INTRODUCTION
The main purpose in keeping farm records and accounts is the improve-
ment of earnings of the farm business. Record keeping in itself will not
increase earnings. But the systematic recording of events and financial
transactions from day to day will make for wiser decisions in farm and
financial matters, and the annual profit and loss statement resulting
from a summarization of the year's records will disclose improvements
that should lead to better farming or handling of finances.
Farm records are usually kept for the following purposes :
1. To determine the earnings of the farm and to discover ways of
increasing them. (See fig. 1.)
2. To furnish information for income-tax returns and other state-
ments or reports required of farmers.
3. To facilitate the operation of the farm business from day to day
in the payment of wages and bills, in obtaining credit, and in conserving
funds and supplies.
4. To provide a historical record of events and financial transactions
for later use in refreshing memory or settling controversies.
There are many other uses for farm records, but it is assumed the
reader is already convinced of his need for them and wishes help in
adopting and getting a system started. And being human, he usually
wants the minimum in records that will meet his needs. These needs,
however, vary widely with kind, size, and ownership of farm. Partner-
ships, corporations, and farmers with extensive operations and numer-
ous employees will require a more complete accounting system than can
be included in this circular. This is limited, therefore, to a presentation
of simple records that will furnish a reasonably accurate statement of
farm profit or loss for the year and will meet most of the requirements of
farmers who, of necessity or from choice, are their own bookkeepers and
who are without technical training in bookkeeping or accounting.
BASIC PRINCIPLES
Farmers spend money for at least three things — personal living, the
purchase of property, and farming operations. They also receive income
from three sources — from personal sources aside from farming, from
^ Extension Specialist in Farm Management and Associate on the Giannini Foun-
dation. J. -.
California Agricultural Extension Service [Cir. 124
SXTMMARy OF INCOME, EXPENSE ANO PROFIT
1 Qt,tndt, ^ ^?*?!
Iee<m»« lt«ms on Line* I to 7 from tage 17
6 M/i^tel Tnc(»yr^c.
43 he^^'
, . , 8_ Total Cash jncwang. Add lln«$ 1 to 7 incl.
9 Pifodovts, etc, 8<rfd but not paid for, pages 56-59
10 Faria contribution to famOy living, page 62.
It Increase Inventory, Feed, Stock, etc., page 71
■JiM- .J.S^^M incl,
^¥37^1
B/O oo
^^^^^^^ ^^^ EXPENSE, Items oa lines 13 to 2! are from page 17,
,15 Tn^cfiff^ eythfi^se^
Total Cash E:q>ense, Add Jme»13_ to, ^
.22
23 Unpaid Expense, pages 56-59.
24 Depreciation, Bldg., Eqt., etc., get from inventory.
25 Decrease in Inventories, Feed, Stock, etc., page 71
26 _ Total Expense, Add lines 22 to 25 ind.
/So ^3
97^o
¥^/735
^o75zi
///S ;n
Net Fartn Income, line 12 minus line 26.
Deduct- Value Operator's &. Family Labor, Est. from page 16.
Capital and Management Income, line 27 minus 28.-
Dcduct, Interest on Investment, compute from page Ti-i^S'y/} /XO^ 3^
Management income, line 29 minus line 30. "^71 f ^
Net Cash Income, line 8 minus line 22. »13Z.0 0^
In comjrfling the abov, sWtemtnt. gst ca* tecoroe* and «p«n»e* from page 17 or the year's totals from the c«sh record. Arnotmts for ««
n and 25 may b* obtained fro» peg* 63. btjt depr«cUtlon, line 24, .houW be the mm of all the deprwiation colnmna in the inventory.
Fig. 1. — Profit and loss statement as used in the California Farm Record
Booh. The computation of farm profit or loss is the most important goal in
farm record keeping. It is made easy by a unified system of records with ade-
quate instructions.
the sale of property, and from the sale of farm products. Farmers' finan-
cial records must separate these three sources or purposes if they are to
show the earnings from farming operations. It cannot be done otherwise,
nor can correct income-tax returns be made without the separation of
personal, farming, and property or capital items.
Records and Accounts 5
There are two ways of making this separation. One is to sort them out
mentally before writing them down and enter farm items in one book,
personal items in another, and perhaps capital or property items in
another ; or, as some farmers do, just write down the farming items and
forget the rest. A better method is to handle all business and personal
affairs in a single set of records but make the necessary segregation by
placing amounts in different columns, or charging them to different
accounts. This latter method is recommended and presented in this cir-
cular in the belief that it makes for more accurate and complete records.
Personal Affairs. — Expenditures for food and clothing are personal
and not farming expenses. Also, expenses for operating the home, such
as fuel, light, and furnishings, are usually personal expenses. Some bills
are part personal and part farm, and should be divided at the time they
are paid, and entered in the record. When there is doubt about whether
an item is a legitimate farming expense or not, it will usually prove to be
a personal expenditure, such as life insurance, or an income-tax pay-
ment. Incomes from other than farm sources, such as annuities, gifts,
and labor or services off the farm are personal and are separated by
putting them in a personal column in the record showing incomes. Some-
times a farmer has other investments or activities besides his farm, but
not enough to warrant a separate set of records. Such items may also be
entered in the farm records but placed in the personal columns.
It is an advantage to have all personal incomes and expenses recorded
along with business items in a single record which may be more easily
checked for accuracy and completeness with one's bank account. Fre-
quently one's personal affairs or withdrawal of funds for personal use,
rather than farming expenditures, may need closer control and better
management to avert financial failure. Also, information on personal
incomes and certain personal expenditures are needed for the personal
income-tax return as much as farm incomes and expenses are needed
for the farm schedule. (See p. 28.)
It is also desirable and sometimes necessary to know the farm opera-
tor's contribution to his business in materials and labor, and his with-
drawals from his business in farm products and supplies. This improves
the accuracy of the computed farm profit and is especially needed where
more than one person or family shares in the ownership and profits of
the farm business. It fosters better management and often discloses op-
portunities to increase farm profit and personal income by utilizing idle
time for additional production of some crop or livestock product for sale
or use in the home. The California Farm Record Book"" contains a special
2 Shultis, A., and L. A. Crawford. California Farm Eecord Book. 72 p. Published
by the Associated Students Store, University of California, Berkeley. Price, 75 cents
a copy, postpaid, tax extra.
6 California Agricultural Extension Service [Cir. 124
page for recording monthly and annual estimates of farm products used
in the home. The labor record in that book contains a column for the
operator to enter the hours he personally works each day throughout the
year. A summary of all contributions and withdrawals for the year
between the operator and his business tends to improve financial secu-
rity by showing when withdrawals are greater than are justified hy the
earnings of this farm business.
Capital. — Property is capital. Cash is capital, and the purchase of a
farm or building or piece of equipment is called capital outlay. Such
purchases of property must be separated from farming expenses. Since
they should be recorded for future reference, however, a capital column
is recommended in farm records, along with personal and farm-expense
columns. To charge the purchase price of a tractor, usable over a period
of years, to farm expense for the year in which it is purchased is ob-
viously incorrect: the cost of that tractor should be spread over the
years when it is used. This is accomplished by means of a charge called
depreciation, explained on page 7. But in order to make such charges
properly, an accurate and complete record of capital outlay as separate
from personal and farm expenses is necessary.
Pieces of equipment costing over $15 and usable over a period of years
should be considered as capital outlay. The purchase of small tools of
low cost and short life may better be considered as farm expense on
the expectation that average purchases over the years would approxi-
mate the depreciation charge on such equipment and make its bother-
some computation unnecessary. Repairs that merely maintain the ex-
pected useful life of buildings or equipment are current expense and not
capital outlay. But additions and rebuilding that increase the usefulness
or extend the useful life of an item are capital outlays.
The cost of bringing a young orchard or vineyard into bearing is a
capital outlay. And this capital outlay includes not only the cost of the
new trees, but also all labor and materials and other expenditures for
the care of the orchard while it is being brought up to commercial bear-
ing age. To consider such expenditures as capital outlay, where they are
mingled with other farm expenses, is difficult and might require detailed
accounting procedures not possible in a simple set of records. It is per-
missible to estimate the portion of farming expenses that is for the
development of an orchard and transfer this amount from expenses to
capital outlay at the end of the year ; or that part of the development
cost which is easily segregated may be considered as capital outlay and
subject to later depreciation, the remainder being absorbed as current
expense for the farm business as a whole during the development period.
Only that part which has been handled as capital outlay may properly
Records and Accounts 7
be spread over the productive years of the orchard in the form of de-
preciation charges. Occasional replants after an orchard is in bearing
are current expense and not additional capital outlay.
Livestock purchased for work or breeding, or for productive purposes
over a period of years, are capital outlay, the same as equipment and if
so considered when purchased are subject to depreciation. However,
where an annual inventory of livestock on hand is used in computing
profit, it is better to consider all livestock purchases as current expense
and include them in the annual inventories at proper values — cost, age,
and quality considered. Animals bought for early resale or those of short
life, such as poultry, are best considered as expense and not capital out-
lay. In a dairy where many cows are purchased and sold annually, it will
be more convenient to consider the purchase of cows as current expense
in order to avoid the necessity of recording the cost, depreciation, and
selling price of each animal in the depreciation record.
Depreciation. — That share of the cost of any improvement or piece
of equipment which is properly chargeable to a year of use is called
depreciation. It may also be defined as the loss in value of a facility
through use or the passage of time. It is an estimate based on the prob-
able total use or life in years, hours, or miles of service. An item costing
$60 and having an estimated useful life of twelve years and no salvage
value would have an annual average depreciation of one twelfth of $60,
or $5 a year. The straight-line method of figuring depreciation and re-
maining value is most frequently used; that is, the same amount of
depreciation is taken each year. Another method sometimes preferred,
as in the case of automobiles, is to take enough depreciation each year
to keep the remaining book value in line with the market value for cars
of that make, age, and condition. For items not used an equal amount
each year, it would be well to base depreciation upon the hours or miles
of use. For example, a combine estimated to have a total useful life of
8,000 hours could be depreciated one tenth of its cost in years when used
300 hours, or one thirtieth of its cost when used 100 hours.
The rate or amount of annual depreciation should be estimated so
that the cost or rem'aining value of each facility will be absorbed over the
remaining useful life of that facility. To write off, or depreciate, equip-
ment at a much faster rate than it declines in value through use is not a
good practice, since when written off no further depreciation may be
taken. The total of all depreciation charges on a facility must not exceed
the original cost less any salvage, or turn-in value. Thus a depreciation
record over the years is necessary to show the remaining value and de-
preciation on each piece of equipment annually. Should a facility be
sold for some other amount than the remaining book value, the differ-
California Agricultural Extension Service [Cm. 124
TABLE 1
Usual Useful Life and Depreciation Eates for California Farm Facilities*
Item or group
Orchards and perennial crops:
Alfalfa
Asparagus
Almond trees
Apple trees
Apricot trees
Bramble vines
Cherry trees
Fig trees
Grape vines
Grapefruit trees
Irrigated pasture and Ladino clover
Lemon trees
Olive trees
Orange trees
Peach trees
Pear trees
Plum trees
Prune trees
Walnut trees
Buildings and improvements:
Barns and other farm buildings
Dwellings
Fences
Wells
Irrigation pumps and motors
Irrigation pipe line, concrete
Farm machinery and equipment:
Tillage and similar implements
Harvesters, diggers, etc
Ladders and lug boxes
Milking machines, refrigerators, etc.
Field power and transportation units:
Automobiles and trucks
Tractors, 6,000 to 12,000 hours of use
Trailers
Work stock
Approxi-
mate age of
commercial
bearing
or use
years
1
2
7
12
8
1
9
8
3
5
1
5
8
7
5
10
8
10
10
Productive or useful
life after reaching
commercial age
Range
years
2- 5
8-12
15-30
20-40
20-35
5-20
20-35
10-40
20-40
10-30
5-20
25-35
20-80
25-35
15-25
15-60
15-30
r-30
20-50
20-60
30-50
10-30
10-30
10-25
20-50
5-20
10-30
5-10
5-15
4-12
8-12
10-20
5-20
Usual
years
3
10
25
30
30
10
30
25
30
25
10
30
50
30
20
40
20
25
40
A common
rate of
depre-
ciation
per cent
33
10
4
3
3
10
3
4
3
4
10
3
2
3
5
3
5
4
3
* Depreciation on farm facilities should be based upon the probable useful life for each item under
the use and conditions prevailing. Standard or usual rates should not be used where they do not apply.
This table is presented as a rough guide only. Annual depreciation may best be computed by dividing the
cost of the item by the total years of expected usefulness. It is also frequently computed by multiplying
original cost by a depreciation rate in per cent. Net cost or value when reaching commercial product ir>n
or use replaces original cost in the case of perennial crops and livestock.
Records and Accounts 9
ence may be used to increase or decrease total depreciation for the year
for all property. There can be no standard rates of depreciation because
conditions differ so from farm to farm. Some ranges in rates or probable
length of life are shown in table 1. It is easier to figure depreciation and
current values by using years than by percentages. As depreciation is
only an estimate, round figures making for easy computation should
be used.
Farming Operations. — One of the main objectives in farm records
and accounts is to learn the profit or loss of the farm business for a
year. This requires that incomes from farm operations and expenses of
conducting these operations be accurately obtained. Farm incomes are
largely from the sale of farm products. Incomes from the sale of prop-
erty should not be confused with incomes from farming. Likewise, farm
expenses are those that are not personal expenditures or capital outlay.
Depreciation is also a farm-operating cost which is estimated at the end
of the year and combined with cash expenses in figuring profit.
Expenses pertaining to the operator's personal dwelling should not be
considered as farm expense except to the extent that the dwelling is used
for farming operations, such as handling farm products or feeding and
housing employees. If one fourth of the total use of the house is for the
farming business and three fourths is for the family, then the expenses
for the dw^elling should ultimately be divided one fourth to farm and
three fourths to personal expenses. However, it would usually be better
to charge all house expenses to the personal account during the year and
then make a charge to farm expenses at the end of the year and a credit
to personal expense for the farm-business use of the home. Expenses on
an automobile for both personal and farm use should likewise be divided
between farm and personal expense. It is usually easier to charge all
automobile expenses to farming operations during the year and then at
the close of the year estimate the proper charge to the personal account
for personal use, and deduct this amount from farm expenses.
Property taxes on the farm are farm expense, except for that portion
which is on the personal dwelling and nonf arm personal property. The
total tax bill may be divided on the basis of the operator's estimate of the
actual value of the property covered. Likewise, fire insurance, electric-
power bills, and many other items call for some division between farm
and personal uses. It is not, however, necessary to go to extremes in
troublesome calculations on small amounts. Rough estimates will be
satisfactory. Interest on a farm mortgage may be considered entirely as
farm expense. The payment of principal or repayment of any loan or
long-standing debt from a previous year is not a farm expense but must
be handled as a capital outlay.
Records and Accounts 11
There may be other farm expenses than those for which cash has been
paid during the year. Exchanges of property for materials or feed or
labor used on the farm, or unpaid bills, would not appear in the cash
record but should sometimes be considered as expense in figuring profit
for the year. A memorandum of noncash transactions is needed for list-
ing such items so that they may be obtained and properly used at the
end of the year. An unpaid expense used in one year in figuring profit
should not be considered expense if met in cash the following year, and
so is entered as a capital outlay.
Four basic columns are recommended in all simple farm cash rec-
ords — the first being a total column and the other three for segregating
personal, capital, and farming items, as illustrated in figure 2.
Farm Enterprises. — So far only farming operations for the farm
business as a w^hole have been mentioned, but for purposes of improv-
ing management and earnings it is sometimes desirable to break the
farm business down into the different crops and kinds of livestock, in
order to figure the profit or loss on each. Any crop or kind of livestock
in commercial production is called an enterprise. The procedures re-
quired for the accurate computation of profit for each enterprise in the
farm business, however, are rather complicated and usually require
more time and technical accounting training than are available to the
farmer keeping his own records. Enterprise accounting, as explained
under system E on page 43, is certainly worth while where warranted by
the size and nature of the business, so it is mentioned occasionally in this
circular, even though methods cannot be fully included. The reader may
well consider its advantages and work toward it as his ultimate goal in
farm records.
The Record Year. — Earnings from farm operations should be figured
for the record year, that is the twelve-month period that best covers the
usual seasonal sequence of a complete cycle of operations from planting
through production and marketing. The record year should begin on
the first da}^ of the first month of such a year and close with the last day
of the twelfth month. On a diversified farm w^here there are a number
of enterprises starting at different times, some are bound to overlap any
single record year. In such cases choose as the record year the one best
suited for most of them. Where no other record year is more suitable, the
calendar year will be found more convenient. Statements for any period
shorter than the record year are of little use, but it is advisable to make
totals and prove the accuracy and completeness of the records at the end
of each month.
Inventories of Livestock, Products, and Supplies. — On many farms,
livestock or farm products produced during one year are not sold until
12 California Agricultural Extension Service [Cir. 124
a year or two later. Also, most of the sales may be of products from a
former year. Feed and supplies are sometimes purchased or are on hand
for use in the following record year. In such cases, to calculate earnings
correctly for a particular year it is necessary to use an inventory of live-
stock, products, and supplies on hand at the beginning and end of the
record year. The closing inventory value plus farm incomes for the year
less the opening inventory and farm expenses will give a much truer
farm profit or loss for that year than if only farm incomes and expenses
are used ; particularly where the inventories of livestock, unsold prod-
ucts, and supplies at beginning and end of the record year are large.
FARM RECORDS
A record is a single type of information entered consecutively on a
specific form. There are several kinds for special purposes, some contain-
ing financial information, while others are devoted to physical quanti-
ties or events. An account is a record in which are assembled only those
financial items pertaining to a person or thing. An account has two sides,
such as received and paid, or expense and income, which are called debit
and credit. The difference between them is called the balance. A system
in this circular is applied to a group of records and accounts intended
when used together to meet all the needs of the farm operator and farm
business for which they were chosen. Five sample systems are explained
later in more detail under "Systems of Farm Records and Accounts" on
page 34. The service a farm operator obtains from a system is largely
determined by his selection of the records to be used. He should consider
the following records carefully and select those he feels will be necessary
or worth while to him.
Cash Record or Cashhook. — A record in which cash-received and cash-
paid transactions are entered as they occur is called a cash record. It is
the most important of all financial records and is frequently the only
one kept. It provides a history of the amount and source of all cash
incomes, and also the amount and purpose of cash expenditures from
day to day. From this record, totals for the year are obtained and used
in computing farm earnings.
There are several forms of cash record, the oldest and simplest being
the bound book with 1 column to a single page, the left-hand page being
used for receipts and the right-hand page for payments. A better form
for a farm operator contains at least 4 columns to a page, the first column
being for the total received or paid, and the other 3 columns showing
the distribution of that amount to personal, capital, and farm-operat-
ing accounts. Where a double page is used to enter both receipts and
payments, it is customary to put receipts on the left-hand page and pay-
Records and Accounts 13
ments on the right. Each entry should consist of the date ; person or firm
involved ; what the payment was for, including quantity, if possible ; and
the amount. When either page (received or paid) is filled, totals are
made, proved correct, and carried forward to the next double page ; thus
current receipts and payments always appear on opposite pages. Four-
column journal paper to fit student binders will serve well for this kind
of a cashbook, and such a record is illustrated in figure 2.
Additional distribution columns in the cash record are often an ad-
vantage, for different kinds of farm incomes and expenses may then be
segregated and recorded. In this case a double page is used for a record
of cash received, and other double pages are used in a different section of
the book for cash paid. This form of cash record was adopted for use in
the California Farm Record Book in 1940 at the request of users of the
former edition, which contained only the 4-column records of cash re-
ceived and paid on opposite pages. It is illustrated in figure 3. Where
commercial accounting forms are used, the record of cash received and
the record of cash paid or the check record are on special forms in differ-
ent sections of the loose-leaf binder.
The cash record is complicated by the fact that there may be two
cash funds, pocket cash and a checking account in the bank. For the
farm operator with a single bank account for both farm and personal
affairs, it is recommended that the cash record parallel the bank account
and that pocket cash be a personal matter and not recorded. All farm and
important personal receipts must then be deposited, and all farm and
large personal payments made by check. Hence, only deposits and checks
need to appear in the cash record, which can then be checked for ac-
curacy and completeness with the bank statement and checkbook. All
personal withdrawals for pocket cash are by check, with the amount
charged to personal purposes by placing it in the personal column. When
a small farm expenditure is made from personal pocket cash, the entry
and charge to farm expense are made by division of the next personal
check between personal and farm-expense columns. This use of the bank
account as the cash account for the accounting system is one of the
greatest aids in keeping a cash record. Nothing is saved, however, by
trying to make duplicate deposit slips ; the checkbook or canceled checks
serve in place of a cash record. The distribution of incomes or payments
to the 3 basic accounts is most easily obtained by placing amounts
in different columns in a cash record. One bank account for personal
items and another one for the farm business is seldom a convenience,
since some payments from either account will require troublesome divi-
sion of the amount between personal and farm purposes.
A 4-column cash record or the cash record in the California Farm
Records and Accounts 15
Record Book, where the cash account parallels the bank account as
recommended above, is kept as follows : At the begmning of the month
enter the balance of cash on hand in the cash-received column and also
in the capital column. Each item of cash received is deposited in the
bank and entered in the record of cash received in order of its receipt.
The amount is always placed in the first or cash-received column, and
also in one of the other 3 basic-account columns. For example, an in-
come from the sale of farm products is placed in the farm-income column,
and a personal income in the personal column ; or if the receipt was
from the sale of property, or a loan, or a back debt from a previous year,
it is placed in the capital column. At the end of the month, check incomes
to deposits on the bank statement and add each column. The sum of the
totals of the 3 basic distribution columns must equal the total of the
cash-received column. Perform the same steps with the record of cash
paid after checking the payments listed with the bank statement and
checkbook. The difference between total cash received, including the
balance at the beginning of the month, and total cash paid should equal
the balance on hand at the end of the month, as verified by the balance
shown in the checkbook and bank statement, with allowance made for
outstanding checks. There will usually be room to show this calculation
on the cash-received page, as in figure 4. The monthly totals for all
columns, including any additional distribution columns, may now be
entered on a special page for that purpose or posted to ledger accounts
in a full bookkeeping sj^stem. This list of monthly totals is useful in
working on a budget or in obtaining and using short-term credit. A
special page is provided in the California Farm Record Book for enter-
ing farm incomes and farm expenses by kind for each of the twelve
months, in order to obtain annual totals.
Record of Noncash Transactions, or Journal. — A memorandum of
noncash transactions will usually be needed to record those that will not
appear in the cashbook. In a simple system, such as A or B, a full ex-
planation of the transaction and the amount involved can be recorded
with little attention to the form of entry. At the end of the year it will
be necessary to go through this record and obtain those items needed in
figuring farm profit.
Cash Journal. — This is a combination of cash record and journal to
serve the purposes of both, in addition to others. It is recommended for
use in system C, which is explained on pages 39-41. It is particularly
desirable w^here different accounts for bank and pocket cash are neces-
sary. The cash journal is a double-page, multicolumnar form with paired
columns for debit and credit entries pertaining to a certain account or
group. In farm record keeping the first 4 or 5 pairs of columns are used
16 California Agricultural Extension Service [Cir. 124
for basic accounts and the remaining columns are used singly for the
distribution of farm incomes or expenses by kind. As described in this
circular for system C (p. 39), the cash journal is not intended as a part
of a full bookkeeping system, although it could well be used in one as
an original book of entry in place of the cashbook and journal.
The cash- journal ruling may be obtained in a bound book or in several
sizes and forms to fit accountant's loose-leaf binders. An 11 by 14 inch
binder with double-page forms of 20 or 24 columns is recommended.
CASH RECEIVED ^,«^ ^ Jw^ '
Case From Whom, For What, and QtMfttitjr Dep- Total Noa Farni Fans
I fi» a C? Keceivtd Farm Capital locoma
i Sbv hv^ wv klX . - n3 IS ltd 16
z /^WvJs^Wi-ut^^^^^^ "^ no- ^/^f?-
% /'^k^A^^^^l^yLMfiAc^ 3 ca^w^ ^ 13^ - ' IBS'
Fig. 4. — Eecord of cash received as used in the California Farm Eecord
Boole. The cash record should be proved accurate and complete at the end of
each month. The sum of the totals of the 3 basic distribution columns should
equal the total of the column for all cash paid as shown above. The cash bal-
ance, obtained by deducting total payments from total receipts, should equal
the actual cash on hand or checkbook balance, and the latter should be proved
correct by means of the bank statement.
This binder permits the selection of a large variety of forms and the
inclusion of other records, such as the depreciation record and ledger
accounts. A 16-column distribution sheet^ fitting an inexpensive stu-
dent's 3-ring binder for 8V2 by 11 inch sheets is also entirely satisfactory
where the number of columns required is not over 16 and will also serve
other uses, such as for a depreciation record, pay-roll record, and analy-
sis-ledger account. Its use is illustrated in figure 15.
The blank cash- journal form provides an opportunity to write in the
basic-account headings needed. The bank account, personal account,
^ This 16-column distribution sheet is published by the Associated Students' Store,
University of California, Berkeley, for use in farm record keeping and will be main-
tained in stock if the demand warrants.
Records and Accounts
17
capital account, and farm-operating account will each have a debit and
credit column. Another pair of columns may be used for a pocket-cash
account where frequent receipts and expenditures that do not pass
through the bank account must be recorded. Where such a cash account
is needed, all cash received by this fund is entered in the debit, or cash-
received, column, and all cash paid from this fund is entered in the
credit, or paid, column. Both personal and farm expenditures can be
paid from this fund. The difference between receipts, including cash on
Fig. 5. — A common form of ledger account. Such an account lias two sides
called debit and credit. The above illustration was opened by entering the
balance of $176.37 owed to the Valley Supply Company on the right-hand, or
credit, side. Subsequent payments of cash to that company on account appear
as debits on the left-hand side and other feed purchases as credits on the right.
After the March 10 payment settled the account in full, it was ruled and
totaled to show the two sides were equal and that the account was closed.
hand at the beginning of the record, and cash payments should equal the
cash on hand by actual count. This is called proving cash and should
be done monthly to insure accuracy.
The amount in every transaction is entered in such a way that amounts
in debit columns equal those in credit columns. A withdrawal of per-
sonal funds by check would be a credit to the bank account and a
debit to the personal account, and entered in those columns. Hence,
at all times, accuracy and completeness of entries may be proved by
checking the total of the basic debit columns to the total of the credit
columns. Farm-income and farm-expense distribution columns are like-
wise checked to the total farm-income or total farm-expense columns.
It is recommended that totals be proved monthly and after proof of cash
and bank balances, be entered on a special page for monthly totals. Fig-
ure 15 shows a month's cash-journal record with its proof. Notice that
to maintain the balance of debit and credit columns in all entries, the
bank and cash balances shown as debits in those accounts at the begin-
18
California Agricultural Extension Service [Cir. 124
fzzi^iPii"..
ACCOUNT
Dat
ry Exp
'e*7^(?^
)^3u.
^
HEer NQ
Z
>-
"^^^7?/^.
Te stir's
^. ''Z^7 "^./^e"^^"/^^" ] ;:i"™^.o« ^~
c«...
i^^n^
IS )li
IL.
^^1\i»Q
_J5
SO 4 not
MJLJdA
~ rm
zMsii
- XitAst 8f.forii>»nL >/.
-i^-i
£>e
'/ZSZ
■(•^
i^M
/i;
^'100
^' u
^m
So 6^i
380
iO
^"^ M
- t 1
Ho
%o
'^' ii
10'
J/7
ih
¥9dS
^^■
3ir^
04
JS tl
3
^3
^]
h
7S
1
~
''/oo
^ ^f
-
\
it CAT
3i J'l
If
/oo
7S
^ Xj
- 't a
k>
*'" f^
70
3/ Ffi
Jzz
so
Ji3Vs5-|
3
fo
j
■/a.
JS Cz
3
/o
1
1
IS
3
So
'' i2.
~
io ^-f/
17
^5*
^- 1
'' i>i^
-
\ '00 j-f
i>0
-
i
^ u
so
^ U
1
it, PfZ
7J¥
So
B¥gisA
s
50
k
JS 6^^
6
30
i>g
io
^
ox
8
~
" io
^ a
-
1
i
3/ £M8
3/ JS
3o
/s
1
_
*' J53
"fls
5
"V^/
~
<^U£
S^VJI
is
3} f^f>^^c^ XS
JS'^
^
if£
%Q
Ssotso
^$
n
i
3"/ J^rtc. J 6
^Ss
TS-
5t3i
^1
532
0^
I
3/ ^mV £V. -^^
33Ji
if
ffdSSiX
1
<.
j
^/ 75 ("/^j/- J-r
"^flfX
J^'
^
i.^
£t> Si2
j$
fV
K
101
-///(>?
10^'qoo
-^''ui
10^) '^^4
!
m
-Tit*/
^^^
its/
13
/t'/V^z.^
'^jk a
^ „p/j>?A'/'/r//-jr
MM£2U
nsTZ^ ^ /?y
2^^ :^^^_
7ii
t
rtfi-.r^ '^^
^^0*.%'
—-J^^'*?'^
"-i^^
fy
b.i
7" ^iiixxi » it 7s
/1?^
So
3T
Sf
\ )o
?
ecn^e
»/rU/^
S /oS^oo OJlX
7iS
70
)S
^
4*' '^
^ ^«/^^
r year
Pa^/-
t/A-je., A
inf -fi,6 iS.i^
7^rf
-
^?
C7
,,, 1?^.
/7
/Si. 6^ ft
3^/
^e^ Usf-
MS3
to
7S
zt
«T
^«.^
7 /i^. /.
.r- Q>^
labo
r
n*. SSiS 7V
//oi
7<^
Si3
SI
&
^
Cow
n
h^
f
r
IS
5
I
/
eh..
Pt
^
JO/
-
3.
/*/
I
M,Si
■ l/\a^
Z-OOS
J7'/
iS
3
p9
■r
(ftne,
a/\£<
be/tose>
33Z
og
7
$lf.
/b
"~
Pp/r
'(, k'?^'
lin
sifs
IS
7
5i
^^iLJ
li^Aj
t^sf
^m
33 /Zi
S7
JVr^
n
' '
'T
Fig. 6. — Ten-column analysis-ledger account, system E. Amounts entered in an im-
portant account may be further segregated by kind by using multi-columnar analysis-
ledger forms. The above illustrates the expense account for a dairy enterprise in
which quantities and costs of several kinds of feed and other expense items are ob-
tained by means of a 10-column analysis-ledger form for an 11 by 14 inch accountant's
binder. In this case the analysis of quantities and costs by kind for the year was
shown on the same page after the closing of the account at the end of the year.
*
ning of the month are balanced by a credit to the capital account, and
that positions are reversed at the close of the month. Notice also that
farm-expense distribution columns are proved equal to the total farm-
expense column.
Ledger. — The ledger is composed of separate accounts with people or
things. This is a storehouse of sorted and accumulated financial informa-
tion. In connection with a simple set of farm records, separate accounts
in a ledger are optional but are recommended where it is desirable to
assemble all transactions with someone owing or owed by the operator
Records and Accounts 19
over a long period, and also for any special enterprise for wliich a sepa-
rate profit calculation is needed. In full double-entry bookkeeping
systems the ledger contains accounts for many purposes, and all trans-
actions will result in a debit to one account and a credit to another. These
debits and credits are posted from transactions originally entered in the
cash book, journal, and other original records of entry. The sum of all
debits in all ledger accounts should equal the sum of all credits, and this
is usually proved monthly by trial balances.
A ledger account has two sides, debit and credit. A simple form is
illustrated in figure 5. For simple accounts, however, a newer 3-column
form with the third column showing the current balances is sometimes
preferred. For further distribution of items within a certain ledger
account the analysis-ledger-account form is recommended. Loose-leaf
forms are available with 8, 10, and 21 analysis columns in the 11 by 14
inch size. Such accounts would be particularly useful in keeping con-
siderable detail for general expense, tractor, and enterprise-expense
accounts, and would reduce the total number of accounts needed in a
full accounting system. Figure 6 illustrates an analysis-ledger account
for a dairy-enterprise-expense account. A similar form would also be
used for the dairy-income account in an enterprise-accounting system.
The accumulation of quantities of labor and materials and of different
kinds of expense is a valuable aid to analyzing an enterprise with the
purpose of discovering changes that will make it more profitable.
Diary. — A diary is a place to record daily activities, events, breeding
dates, and unusual weather, for future reference. It may be kept in
special books available for that purpose, or such information may be
entered in some other record, or combined with the labor record as in
the California Farm Record Book, shown in figure 7. The daily use of
such a record not only provides a valuable historical record for future
reference, but also helps the formation of good habits in other matters,
since going to the desk each day to make entries will result in keeping
financial records up to date, and will also avoid omissions through lapse
of memory.
Labor Record. — A labor record will usually be needed where there is
more than one employee. It should show the time worked by each em-
ployee each day, and also the quantity of the operator's and unpaid
family labor, in order to complete the picture of all labor used in farm
operations. Its summarization monthly and annually should help to
improve the utilization and distribution of labor. Such a record is
needed for the computation of wages, and it also improves supervision
in that the necessity of filling it out tends to make the operator or fore-
man check on his workmen more carefully.
20 California Agricultural Extension Service [Cir- 124
s '
DiOVf 8ECORO ©F TIME WORKED ANB WORK DONE FOR MONTH OF ^ .^fi.^<4'y^^ , J5 V/
1:41 ^jh^^^l
H A 11 ''^''^^
»T- ft -£ Hen»rtni. W«rk 0«n»6 <ar Operation P»rfor«i*<J
«ad Piaa os- Ctwp Woriwd On.
i?
. o^lJi ^^ i^Z^^t^ OtAJut
f AW^ ^i^ .<jw^2jr ^i« j:&^ */*^
? / IX ■■ ■■ -^ < ^
/« 9 1it)
1' * ?_^^ -^
^ i, f i s
f& "i i S 9
{i f ? ^ ?
■? 9, f / ^
<i 9 q 9
•H^-7'
7 f <? f
? f f '^
? f -?
20
*^^^ -
21
22
.2
^*
23
9
24
r
25
7
26
/«
27
/o2.
28
/3
29
r
30
K
/^
lS!t«7/3
"s/TT^'^o 13
^ GO.^yS*^y^ ifz^nM^-r.^^
S
o2 /f
/U *2'W«-W,, ¥' At^*M^ ^i.^UA'*^4'*.f
.JilAlJPL... ...
Fig. 7. — Labor record and diary as used in the California Farm Record
Boole. Useful management and historical data are made available by a labor
record and diary. This is also a convenient place to record the time worked by
employees for the computation of wages. Its use fosters better habits in farm
records and administration of farm business.
There are two main types of labor record, one which merely shows
opposite the man's name the hours worked each day, and the other in
which time each day is distributed by enterprises and jobs. The former
type may be kept in a small pocket time book, available in most station-
ery stores, or in a special record as in the California Farm Uecord Book,
an illustration of which appears in figure 7. The other type of record
requires more space for each worker for each day, and usually takes
Records and Accounts
21
the form of a daily, weekly, semimonthly, or monthly timecard. The
monthly timecard is recommended as being most convenient. Such cards
show daily the hours of work on each job and provide a convenient
means of securing monthly cost totals for each job or enterprise. Figure
8 presents an illustration of such a card. This form of labor record is
P LI JKAl.uxrt,^.«,u^.<,i.«^,r'c FARM WORKERS MONTHLY LABOR RECORD
I ^
jc /c^o c
"^9?
i o ?>/^/i/»/^
7^ ^ ^
^<\
^/
^^
li If i /i
/I
'( /i 'i
1 ^
Fig. 8. — Farm worker's monthly labor record, system E. The above form or
one of similar nature is used in enterprise accounting for listing work and com-
puting its costs by enterprises and jobs within enterprises. One is required
each month for each worker on the farm.
needed only where full enterprise accounting is followed. At the end of
each month a summary of each worker's labor is entered in the pay-roll
record.
Fay-Boll Record. — In enterprise accounting a pay-roll record show-
ing the distribution of labor costs to enterprise and other accounts is
needed. At the end of each month, each worker's time and wages are
entered opposite his name, and the total cost of his services is distributed
over columns for each account to w^hich labor is to be charged. When
all entries have been made, monthly totals are secured and posted to
the proper ledger accounts. Columns may also be provided for different
operations on crop enterprises so that the enterprise may be more fully
analyzed with a view to discovering possible economies.
Service-Unit Records. — Tractors, trucks, pumping plants, bunk houses,
and similar units are operated to perform services for productive enter-
22
California Agricultural Extension Service
[Cm. 124
HOUSE NO,_ ^ /
MONTH Cl.A^.
PEN NO.
YEAR
/
■jr.
! '
1
1
EGGS
REMARKS GRAIN FED
MASH FED
I
I
1
1
1
'
^
^
■^
1
>o
Sg
15
\
ni
/f
^c^o
¥0
m
Z
/3i
//^
z^^
H
'40
3
;^
//-6
<?3
b^
^(0
¥V
r^
/^f
/^5
:is/
f7
4(.
5
///
/<P7
^/B
¥^
^1
6
/
m
XL(a
H
\Ut\ ^
7
/
//i
26/
So
H
8
/
/a
7.^
:i3$
H
So
9
/ot
^^
ii%
¥i
---
10
^
//3
23.^
n
4^
U
/^i-
//4
2^
H^
^S'
12
H'
/^7
/^J
^^
n
H
13
ni
///
^SiO
H
V?
14
/A/
/^^
^'tt
¥7
¥^
IS
f/f
/;?5
¥0
¥7
16
¥
/i0
//^
ill.
V5
17
I5g
/^/
23^
^4
U
18
/J9
/f
ps
f4
f^
!9
<;2;i
--
fA:^
/J^
A5?
n
P
20
/d4
/-^
:^^
H
u^
21
ih
//$
23S'
H
¥^
22
m
I/O
I'k)
4^
UlI
23
'So.
10%
23X
fH
4^V
24
NO
?U
V=>
vv
—
25
ar
/O/
Z%
"is
26
//^
/>7
^3;^
//s
27
/
/^
/OS
^f
V5
«
^n
//f
¥^
29
V
ffi4
U^-
^Sh
\ki-
'
v:?
30
//f
f(n
IL'T
V?
¥^
31
\%
^5.
o\
7^5
1
1
Bix
Bir.
Pin
dsDi«
is So]
of m
id
d
sntli
.^
Birds Added.
Sads Transferred
BiKk End of Month
E
)ate
...To
la
zi
Fig. 9. — A poultry pen or house record. A daily production, mortality, and
feed record for each separate pen of birds is a valuable aid to the efficient
operation of a poultry enterprise. Special records can be developed and used
for better management of all livestock enterprises.
prises, and not to earn a profit for themselves. Costs thereon may be
segregated in separate accounts or distribution columns, v^^here they may
be analyzed as a guide to better selection and operation of such units.
In enterprise accounting these costs are distributed to enterprises on
the basis of use or services performed ; hence some kind of record is
needed to show the work done by enterprises. Such records may be in-
cluded in the simple labor record, or special records may be developed.
Records and Accounts . 23
The labor record in the California Farm Record Book (fig. 7) contains
columns for showing horse, tractor, truck, and other use daily. The farm
worker's monthly timecard (fig. 8) also contains a place to record use
of field-power units by that worker. Or, one of these cards may be used
for each truck, tractor, or other unit to show its use daily and facilitate
a summary of services for the year.
Crop and Field Records.~A record should be made each year of the
use of each field and the production thereon. A fairly accurate up-to-
date map showing roads and fences, with the fields numbered and acre-
age marked thereon will provide the basis for such a record. This would
be supplemented by a list of crops by fields in which would be shown the
total yield, yield per acre, and perhaps the disposition of the crop. The
map will also serve other useful purposes, such as estimating seed, fer-
tilizer, or fencing requirements, in planning future operations.
Livestock Records. — A suitable record pertaining to each livestock
enterprise of commercial size is a valuable aid to better management. For
a dairy, a herd-production record and individual cow-breeding and pro-
duction records as obtained through herd-improvement associations are
advisable. For a beef-cattle herd, a memorandum book is used in the
field to record herd counts, death losses, brandings, vaccinations, and
sales; this is indispensable in properly managing and keeping track of
such a large investment. For a swine enterprise, breeding and farrow-
ing records for individual sows are valuable. A poultry-pen record on
production, mortality, and feed, is shown in figure 9.
Inventory. — An inventory is a detailed list of items owned, by quan-
tity and value. A full inventory for the preparation of a net- worth
statement would contain all property owned and all debts. In figuring
profit or loss, in connection with a depreciation record, only an inven-
tory of livestock, products, and supplies is necessary. These latter items
should be inventoried carefully by counting, measuring, or otherwise
computing the quantity on hand and then computing the value by means
of prices estimated by consistent methods over the years. Productive
livestock, such as breeding cows, dairy cows, or sows, should be valued
conservatively at about the same amount per head for stock of the same
age and quality from year to year. Livestock and crops about ready for
sale should be listed at farm value at the time of the inventory. Farm
value is market value less the cost of marketing. Crops raised for feeding
on the farm should be listed at farm value at the time of harvesting. Pur-
chased feed and supplies should be listed at cost delivered to the farm.
The valuation of equipment will be discussed below under the "Depre-
ciation Record."
An inventory can be made at any time on any form, but it is usually
Records and Accounts 25
made once a year at the end of one record year and the beginning of the
next. Special farm-record books usually contain forms for a complete
inventory and net-worth statement at the beginning and end of the
record year. Figure 11 shows the inventory summary page or statement
of net worth from the California Farm Record Book.
Depreciation Record. — The depreciation record is a listing of all
items of improvement and equipment in which is shown for each item
the date of purchase, original cost, probable total useful life, present
value at the beginning of the record year, additional capital outlay dur-
ing the year, depreciation for the year, and value at the close of that
year and the beginning of the next. Space is provided for all this in-
formation in the improvement and equipment inventories in the Cali-
fornia Farm Record Book. Since such books are for one year only, it is
necessary each year to copy much of the data over into the new book for
the following year. There must always be a continuity of values from
year to year so that total capital outlay but no more will be charged off
as depreciation over the useful life of that item. A continuous record for
several years is a great convenience and is made possible by distribution
sheets of from 16 to 24 columns to a double page. Figure 10 illustrates
such a depreciation record.
All -large items usable over a period of years and considered as capital
outlay when obtained, should be listed individually in the depreciation
record. Each item will take one line across a double page in the columnar
record for several years. Items should be listed by groups and totals for
each group taken each year, to facilitate checking by groups and to show
the remaining value and annual depreciation for that group of prop-
erty. Space should be left above the totals for the addition of new items
over the years. When the depreciation record is started for the first time
it is necessary to make a complete inventory of all improvements and
equipment to be listed. Original cost, present age, and total length of
life will be needed. Where age and original cost are not known they will
have to be estimated.
Divide original cost by expected total length of life to obtain average
annual depreciation; no salvage value is assumed in most cases. Sub-
tract present age from total expected life to obtain expected years of
additional service. Multiply average annual depreciation by expected
additional years of service to obtain present value. For example, a disk
harrow costing about $240 and known to be ten years old is expected to
contain two more years of useful service. Thus its total life is twelve
years, which divided into $240 gives a depreciation of $20 a year. With
two more years to go, its present value is $40.
Where age or cost of a piece of equipment cannot be estimated, it is
26 California Agricultural Extension Service [Cm. 124
permissible to assume the present value and base future depreciation on
the expected years of service. If a disk appears to have a present second-
hand value of $60 and appears to be good for five more years, then the
depreciation w^ould be figured at $12 a year.
Where additional capital outlay is made for an existing item during
a year, it is shown in the proper column and included in the value at the
close of the year after taking a new depreciation based upon the new
expected useful life. For example, a twenty-year-old barn costing $1,000,
with a value of $500 at the beginning of the year, is remodeled at a cost
of $700. This brings the present value up to $1,200, which if spread
over the now expected thirty years of use would result in a $30 de-
preciation in place of the former $25. The value at the close of the year
would then be $1,170.
At the end of each year it is well to check over the depreciation record
to see that all equipment owned is properly entered and also to see that
all equipment listed is still on hand in usable condition. In computing
depreciation for the year and the remaining value for each piece of
equipment, it is also well to see that the remaining value in the record is
close to actual value. If there is a discrepancy, depreciation may be in-
creased or decreased to bring the remaining value at the end of the
year closer to the actual value of that item. Total depreciation is then
obtained from this record for inclusion in the annual profit and loss
statement.
When depreciation takes off the last remaining book value for an
item, it can be dropped if it is no longer in use. If still in use it should be
included in the record but given no value. When an item is traded in or
sold it is dropped by writing "sold" and showing the amount. The dif-
ference between selling price and value at the first of the year may be
shown as depreciation. If sold for more than book value, the difference
is encircled to show that this is to be subtracted rather than added in
obtaining total depreciation. When all columns on a double page have
been used by carrying forward the depreciation record for several years,
a new record is started in the same way. On the new record, items no
longer in use and entirely written off (having no remaining value) are
omitted. Figure 10 illustrates a depreciation record for five years kept
on 16-column distribution sheets in a student's 3-ring binder. Notice
how an additional capital outlay and the trading-in of an old car on a
new one are handled. Also notice that the family dwelling, although
shown, is not included in the first total, since depreciation thereon is
a personal and not a farm expense.
Personal or Household Accounts. — The keeping of a detailed record
of personal expenditures by kind is an optional supplement to a system
Records and Accounts 27
of farm records. The cash records explamed on pages 12-15 show total
personal expenditures but no segregation. For better control or budget-
ing of personal expenditures, however, a separate record showing the
amounts for various purposes may be kept in a separate section of a
loose-leaf record book or in a special household-account book.* Such a
record makes a most useful supplement to the California Farm Record
Book. The farm cash record will show all personal withdrawals or pay-
ments of personal bills. These items are also entered in the home account,
where they are distributed in detail over such columns as food and
clothing, household expense, luxuries, benevolences, health, and home
furnishings.
Files and Business Papers. — Not to be overlooked in a system of rec-
ords are files for statements, receipted bills, invoices, and other business
papers. These may contain considerable detail that cannot be incor-
porated in the cash record, but which may well be preserved for future
reference. A separate filing folder or pocket for each firm or packing-
house that handles products from the farm is recommended, and ma-
terial for at least one previous year should be on hand for ready
reference.
STATEMENTS
A statement is an assembly of data in summary form from various
records, usually at the end of the record year. They need not be formal
or follow any prescribed form. But unless a summary of the year's rec-
ords is made, a large part of their value is lost. A farm profit and loss
statement, net-worth statement, and a statement of personal contribu-
tions and withdrawals are most important and should be prepared each
year and preserved for comparison. A few other statements are also
suggested below, in the belief that they may improve farm management
and profits.
Farm Profit and Loss Statement. — The statement of farm profit or
loss for a year is a presentation of farm incomes and expenses in sum-
mary form with the computation of farm profit or loss. Cash incomes
and expenses are obtained from the cash record. The required noncash
items are obtained from the memorandum of noncash transactions and
other special records. Depreciation is obtained from a complete inven-
tory or a depreciation record. If the opening and closing inventories of
livestock, products, and supplies are large and would materially affect
the computed profit or loss, they should be used. If their effect is small,
they may be omitted from the profit and loss statement, profit or loss
then being based upon the difference between cash incomes and cash
* The Home Account Bool: is obtainable without charge from home demonstration
agents conducting home-management educational work in most agricultural counties
in California.
28 California Agricultural Extension Service [Cir. 124
expenses plus depreciation. A uniform policy should be followed. from
year to year, although it is always possible to change to a more suitable
method. Figure 1 shows the profit and loss statement used in the Cali-
fornia Farm Record Book.
The value of the operator's own labor as based on a labor record may
well be included as an expense in order to obtain a net-income figure for
the farm business that will be more comparable from year to year. If the
operator's labor is not included as an expense, the net income would be
what is called net farm income, which would represent the total return
to the operator for his management, labor, and invested capital. Any
one or all five of the principal measures of net income may be obtained,
but they should be obtained by consistent methods from year to year
and the same ones used for comparison. The five main profit figures are
as follows :
Net farm income is the profit as computed (with or without inven-
tories of livestock products and supplies) without considering the opera-
tor's or unpaid family labor as an expense and without interest on the
operator's net investment in the business as an expense, but with de-
preciation included as an expense.
Capital and management income is computed as above, except that
operator's and family labor is considered an expense, or it is obtained
by deducting the value of that labor from net farm income.
Management income is the capital and management income less inter-
est on the operator's net investment in the business at any chosen rate
of interest, perhaps 4, 5, or 6 per cent. It is the amount remaining to
reimburse him for his management after all other costs are met, includ-
ing wages for his labor, and interest on his invested capital.
Capital income is the capital and management income less an esti-
mated management charge. It is the net earning of invested capital and
may be divided by the operator's net investment in the farm business to
show the rate of return.
Lai) or income is the profit as computed where interest on the opera-
tor's investment is considered an expense, but not the value of his own
labor. It is management income plus the value of the operator's labor, or
is farm income less interest on the operator's investment.
The Farm Schedule for Income Tax. — The farm schedule (Form
1040F federal, and 540F California) is a supplement to the personal
income-tax return. It is for the purpose of showing farm incomes and
expenses, and for computing "net farm profit" from the farm business,
this amount being carried over as a single item to the personal return
or distributed to the personal returns of those who share it. This farm
schedule or a summary of the farm profit and loss statement based upon
Records and Accounts 29
an adequate set of farm accounts kept on an inventory, or accrual, basis
is required of all farmers who must file a personal return. The farm
schedule is merely one particular form of a farm profit and loss state-
ment, and may be prepared from any adequate set of books or records,
or filled in directly from a profit and loss statement already made.
Though used more widely by farmers who figure profit on what is called
a cash basis, the farm schedule also provides for the computation of
profit on the inventory, or accrual, basis if that is preferred and fol-
lowed consistently.
No special form of records or method of accounting other than would
be chosen as most appropriate, convenient, and accurate for disclosing
the true profit or loss from farming operations is required for the farm
schedule. Capital outlay and personal expenses must of course be elimi-
nated from farming expenses, as explained in the section on "Basic
Principles." Depreciation claimed as a farm expense on the farm sched-
ule will ordinarily be the same as that shown in one's depreciation
schedule except where the method of handling certain items in previous
years requires a different procedure. For example, where the expenses
of developing an orchard were included as current expense in previous
years, instead of capital outlay, depreciation on that orchard would not
be a deductible expense in the farm schedule. The farmer who keeps his
own records, who honestly and consistently follows instructions, and
who uses proper valuation policies and methods of reporting from year
to year should have no trouble in filling out his farm schedule.
The farm schedule provides for the calculation of "net farm profit"
by either of two methods: (1) the cash receipts and disbursements, or
(2) the inventory basis. Whichever method is adopted must be followed
until permission to change is obtained.
On the cash basis, "net farm profit" is cash farm incomes less cash
farm expenses and less depreciation. Records required for this basis are
a record of cash farm incomes and expenses and a depreciation record.
This basis is recommended for its simplicity where the sales in any year
reflect the value of the products produced during the year.
On the inventory basis, the inventory of livestock, products, and sup-
plies is considered in computing profit. Cash incomes plus the closing-
inventory less opening inventory, cash expenses, and depreciation equals
"net farm profit." Records required for this basis are the record of cash
farm incomes and expenses, the depreciation record, and the inventory
of livestock, products, and supplies at beginning and end of the record
year. This basis is recommended where crops or livestock produced are
not usually sold in the year of their production and are carried over
from year to year in varying quantities. The inventory basis of figuring
30
California Agricultural Extension Service [Cir. 124
FARM INVENTORY SUMMARY and STATEMENT OF NET WORTH
lTJcr«ais«
During
Year
Land
Crops, Trees, Viaes
Buildings and Improvements
Departm«RtaJ Equipment
Farm Automobilea, Tractors, Truck*
Impletoents, Equipment, and Tools
Work Stock
Bet^ Cattle
Dairy Cattle
Sheep
Swine
Poultry
Other Livestock
Feed, Products sind Supplies
Accounts and Notes Receivable
Farm Cash
1
2
3
4
5
6
7
8
9
10
a
12
13
14
15
16
17
16 ^
19 Total Farm A«8ct» Add lines 1 to 18
20 Accounts and Notes Payable Page 70
21 Net Worth of Farm Line 19 minus line 20
from Page 64
Page 64
Page 65
Page 65
Page 65
Page 66
Page 68
Page 68
Page 68
Page 69
Page 69
Page 69
Page 69
Page 67
Page 70
Page 70
173^0 f!0 4o
•367 BO (o3x> to ^f^O
fSo lO
13^(, ^ 4S2i
STATEMENT OF PERSONAL NET WORTH
Net Worth of Farm
Family Dwdling
Personal Property, Car and H. H. Goods
Pereonal Accounta and Note* RecelvaWe
Personal Cash and Bank Depoelta
Vslne
Beginning Year
Valae
End of Y«Br
Line 21 ^:il S
^^IdiUO
Page 65 SOOO —
S^i^-
/SJO
//t»0 —
M ^0
ISO -
'/3o -
Total Personal Assets Add Hn«» 22 to 27
Personal Accounts and,Notes PajTtble _
Personal Net Worth Line 28 minus line 29
tnoe - ^ofSf^O 3ifq iO
rig. 11. — Inventory summary and net-worth statement as used in the Cali-
fornia Farm Eecord Boole. This illustration shows in the first section the net
worth of the farm business and below that the total personal net worth. The
preparation of this statement annually shows whether one is getting ahead or
running behind financially and tends to promote economic security.
profit puts the profit in the year when it is earned, and results in a more
uniform computed profit from year to year, where inventories are large.
To ignore inventories, as in the cash basis, might result in more violent
fluctuations in profit from year to year, with a tendency to increase the
amount of tax to be paid, although the total profit over a period of years
would be the same by either method.
Records and Accounts 31
Net-Worth Statement. — The statement of net worth is a list in sum-
mary form of property and debts, the difference between the value of all
property and the sum of all debts being the net worth. It may apply to
the farm business only, or also include personal items. The net-worth
statement can be prepared at any time by listing everything owned and
owed, but it is usually made at the end of each record year, so that the
same inventories or listings can also be used in computing profit. A com-
parison of net worth with that of previous years will show whether there
has been an increase or decrease. When used alone without a farm profit
and loss statement, it does not show the reason for an increase or de-
crease, since a decrease in net worth might be due to excessive personal
withdrawals and not to the failure of farming operations to show a
profit. Figure 11 shows the net-worth statement in the California Farm
Record Book. Notice that it is in two parts, first the net worth of the
farm business and then the farm operator's personal net worth. The
satisfaction of knowing one is getting ahead financially is certainly
worth the trouble of making such a statement annually, as is the warn-
ing in case of a decline in net worth.
Statement of Personal Contributions and Withdrawals. — A most im-
portant comparison is made by means of an informal little statement, or
calculation, which summarizes the operator's relation with his farm busi-
ness. On the one hand it should show his contributions in labor, money,
and materials, and on the other, the amount withdrawn in cash, products,
and supplies. The form of this statement, or comparison, is unimportant,
but what is shown should be known and acted upon. If net withdrawals
are greater than farm profit, then a decline in net worth is bound to take
place and the operator may be said to be living upon part of his capital
as well as his profits, if any. Such a condition is occasionally necessary
ill such a hazardous occupation as farming, but this cannot be continued
for many years without impairment of financial security. If personal
withdrawals cannot be reduced, then ways must be found to increase
farm earnings. Figure 12 illustrates this type of statement.
Annual Summary of Labor and Field-Power Use. — It is well for the
farm operator to record the hours of man labor and the hours of use of
power units monthly and for the year, in order that he may better or-
ganize his business to reduce peak requirements and be guided in future
decisions regarding the purchase of equipment. Figure 13 shows the sum-
mary page in the California Farm Record Book, where this information
is made available by entering monthly totals from the labor record illus-
trated in figure 7.
Annual Summaries of Livestock Records. — Where livestock-produc-
tion records of any kind are available, they can only reach their greatest
Expiaaatioa
6ilj/i /hm />WJ:^na/ Sources ___JA2£L
Mrs&rui/ 4^ie of Cetr M6mMi4 /^^ "
/^// tA/i/h^r4U(^aL Ar //<^/^/ ^i ^MSo
^Vt ^tcrhne. h^ui&i- p&TiHitil ^60^=fi /4S*^o JUs^
Tihl af^cJme M htrs&y^/ "h-krm ti^t^^^f^ _ J^^^
Fig. 12 — Statement of personal contributions and withdrawals. This state-
ment brings together in summary form the relations between the farm opera-
tor and his business. Its primary purpose is to disclose and check such unsound
tendencies as excessive withdrawals, which may cause a decline in net worth.
!6
ANNUAL SUMMARY OF HOURS WOKKEp OR TIME USED ON KtiTlRB FARM FOR YEAR ENDING
-XmX ac
ir \A' >rke<} 0.
Us^^ fur E
;t.t.re Fsrm
- S^Mlf
Month
Seli & Fml5
1 ^b'^r
Hlr«a
3?^«t+
Tm^'l'.
iiTig. Water
fhut.
Jan.
:2:1s
«5^/
34
3/
i
Feb.
1^^
;^Md
3o^
50
a^
/o
March
■ ^i4
ASA
/^^
/6
31
/X{^
/$
April
^/C
34f
: f^
/5
So
3^X
n
May
^4^
^^f
¥7^
SI
3/
3i5
SI
June
P^Cb
^^4
i^OO
lo
•n4
^3
Ja!y
li^
Uo
¥n
47
3/
iiB
;2^
Aug,
a OS
700
^3o
SJ
3"^
zs?
sc
Sept.
:i73
U07
30%
^^
. i'f
/as
/o
Oct.
239
5/7
^Of
^^
: /a.
7^2.
xo
Nov.
/5A
-^s
5V
do
¥
Dec.
/f7
/^l/
6¥
3/
^
Total
^5(.G
4HiSSSZ
^^f.
:i9^
Opposite each month in the above form place the <ota!s tor that raoalh from the monthly labor records, pages 4 to i5. Obtain totalt for th«
record ysar. The Wank coltsmna may he used for securing snnuai totais oi additional information. Self labor and other {araily labor -wUi
b» the sum Of th««t items. Hired i«bor entered above wiU lie the sum for aiJ cmployeas.
Fig. 13. — Summary of labor and field power as used in the California Farm
Record BooTc. An annual summary, by months, of man, horse, tractor, truck,
and irrigation-plant work is useful in many ways, such as for rearranging work
to reduce peak needs and for deciding the size and kind of power units to own
or to rent.
Records and Accounts
33
usefulness through an annual summary. Form is unimportant, but such
information as eggs per average hen for the year, percentage mortality,
and percentage culled should be calculated for a poultry enterprise of
♦3,2 »cr*«, *»58o trees, 36 jettrt old
Quantity
Total
per
Total
Per
Per
Qaexitit^
aore
-Talne
acre
ton
hxooamt
!to. 1 «ad 2 Jhipplag fmtt
324.60 T.
7,51 T.
$ 9,900.30
$229.17
130.^
lcK»e fmlt «hi;^
47,56 T.
1.10 T.
1,161.58
26.89
23.95
So, 1 eaaa«s7- trtxii
162,41 T,
3.76 T.
4,466.28
103.39
27.50
Cull* and wiitit*Xl»
37, a T,
0.86 T.
42.79
0.99
1.15
Total ftralt
571 .?2 T,
13.23 T.
15,570.95
360.44
27.24
Sheep fsusttar*
350 isi. ao.
8:1 hd.»o.
52.50
W^
O^gt
Total ia^oae
15»623,45
27.33
Exp«Mi»»t
Man Uhnr
FmaiAg
Cootreot
....
1669.60
115.50
41.1?
Brush dl»l»»al
90.? hr.
2.1 hr.
33.26
0.77
0.06
Sprayiag
838,1 hr.
19,4 hr.
293.76
6.80
0.51
Cutting bOii^t
937.4 br.
21,7 hr.
328,32
7.60
C.5?
CultlT«tt<aa
345.6 hr.
8,0 hr.
138.24
3.20
0.24
Irrifitioa
♦32«d hr.
10 .0 hr.
1^,20
3.^
0,27
Mlfio«ll»a«oa»
Sttbtotfti
324.0 iir. ■
7.5 to.
120 JLO
1,734.46
^
9tU.
3.03
ProF^iag
133.9 far.
3.1 hr.
48,38
1.12
0.09
PlcVIng
6,177.6 to.
143.0 hr.
2,160,00
50.00
3.78
Hauli&g frolt «u)d lx»c«s
604,8 hr.
14.0 hr.
241.92
-^
9r*?,
Toi&l »&n labor
4,1§4,78
7.32
Tractor work
259 hr.
6.0 hr.
292.67
6.77-
0.51
"^Vick work
518 hr.
12.0 hr.
621.60
14,39
1.09
Horse »ork
780 hr.
18.1 bsr.
101.40
12o!3t
,94$
Total labor and field power
5,200.45
9.10
Irrigation witer
6$5 Acr«-in.
16.1 Aore-in,
410,40
9.50
0.72
Fertiliser, bamjrard
36 T.
0,83 T,
54.00
1,25
0.09
Fertiliser, samonim axLLfate
10 T.
0.23 T.
400.00
9,26
O.r?0
Cover ca-op aeed, T»tob aad oats
1,55(3 Iba,
36.0 lbs.
71,80
1,66
0.12
Spray nat«rlal
. . .
. . .
486,00
. U.J}?,
153.30
0.85
11758
Subtotal
6,622.65
Genaral SxpaoB*
725,76
16.80
1.2?
Defareolation oa treaa
432,00
10.00
0.76
Other d*pr»oiatioB
1.U.78
"i53^
^M
Total »U. ooats
7,915^9
Sat pront
7,708,26
178.44
13.48
IztvealaMat
^",755.36
1457.30
. . .
Rate earued 00 inwatawat, par i
seat
39.0
Fig. 14, — Enterprise profit and loss statement. The above is a sample state-
ment and analysis of a pear enterprise as it could be made from a full enter-
prise-accounting system under system E.
commercial size, and preserved for comparison from year to year. A
summary of feeds used might also prove helpful.
Enterprise Profit and Loss Statement. — Although this circular does
not attempt to present full enterprise accounting, it is well for the farmer
using simple farm records on a farm business as a whole to consider the
value of a detailed statement and analysis of a crop or livestock enter-
34 California Agricultural Extension Service [Cir- 124
prise. Where the farm business consists of only a single enterprise, it is
easy to make up an enterprise statement from any simple set of records.
Such a statement should show the total yield, income, and costs for the
enterprise, and the same data per acre or per cow, and also per unit of
product, as per ton or per hundredweight or per dozen. Figure 14 shows
a sample statement for a pear enterprise. A fairly accurate statement can
be made up from a simple set of records, provided some supplemental
information is kept in the labor record and in a few ledger accounts. Cer-
tain general farm expenses not directly chargeable to the different enter-
prises can be arbitrarily divided between different enterprises at the end
of the year, in order to make up the statements.
SYSTEMS OF FARM RECORDS AND ACCOUNTS
A combination of records kept concurrently on the farm and personal
business is called a system. It is composed of those records selected from
the complete list, previously described under "Farm Records," as having
for the operator in question enough value to more than repay him for
the time and trouble involved. For small farms a brief simple system
composed of a single record, such as a cashbook, might be sufficient. For
larger farms additional records would be required, and a more complete
system would be desirable and could be justified by the volume of busi-
ness or amount of wealth involved. The more detailed and complete the
system, the greater its value in organizing and administering the busi-
ness, but also the greater will be the time and effort required. Although
there are infinite variations and combinations of records, five basic sys-
tems have been selected for further explanation. One of these, with modi-
fications, perhaps, should meet the needs or be within the ability or time
and cost limitations of practically every California farmer. Failure to
mention additional systems or methods, however, does not mean that
other satisfactory ones do not exist.
Simple record systems requiring no technical knowledge of bookkeep-
ing include :
System A, simple cash record supplemented by depreciation record
System B, farm record book with all necessary records and statements
System C, cash journal and depreciation record plus needed supple-
mentary records
Accounting systems requiring technical accounting ability include :
System D, double-entry bookkeeping on farm business as a whole
System E, enterprise accounting
The first three methods are intended for use by farmers without the
use of technical bookkeeping procedures. System A is the absolute mini-
Records and Accounts 35
miim of records that would provide for the computation of farm profit or
loss and for making out an income-tax farm schedule on a cash basis.
System B is any one of a number of carefully prepared special farm-
record books containing all forms and records needed by the operator of
the usual family-sized commercial farm. It has the advantage of contain-
ing instructions and special forms not available elsev^here. System C is
similar to system A, except that a more useful cash journal replaces the
simple cashbook. It has the advantage of facilitating the handling of
cash, bank, and credit or noncash items in a single record. To utilize
its advantages fully, however, would require somewhat more care and
ability than systems A or B.
Full double-entry bookkeeping procedures are involved in systems D
and E. Double-entry bookkeeping consists in the entering of each trans-
action in books of original entry, with each transaction ultimately result-
ing in the further entry of the amount involved as a debit to one ledger
account or more, and an equal amount credited to other ledger accounts.
It is very doubtful if anyone can successfully conduct such systems with-
out some formal training or home study of bookkeeping. Therefore, their
use would be limited to those farms where some member of the household
has the required training or where the volume of business warrants the
employment of technical assistance or a part- or full-time bookkeeper.
These systems are, however, sometimes required, and so they are pre-
sented briefly in this circular in order that the reader will be more ade-
quately helped in the selection of a system that will meet his needs.
SYSTEM A, THE SIMPLE CASH RECORD
The minimum system that will provide a historical record of most
financial transactions and the information needed for income-tax return
and farm schedule is the cashbook or any complete record of all cash
received and of cash paid for farming expenses, supplemented by the
computation of depreciation on farm buildings and equipment. Even in
this simple system it is still necessary to separate personal, property (or
capital), and farm-operating receipts and payments. The cashbook rec-
ommended would have similar left- and right-hand pages with date,
explanation space, and 4 money columns on each.
The left-hand page would be for listing all cash incomes from any
source with all items entered in the first column. Personal incomes would
be entered also in the second column. Cash received from borrowings,
long-standing debts, or from the sale of property would be entered in
the third, or capital, column, while cash received from the sale of farm
products would be entered in the fourth column. Items in the second,
or personal, column and perhaps some of the items in the third, or capi-
36 California Agricultural Extension Service [Cir- 124
tal, column are needed for the personal income-tax return. Items in the
fourth column would be placed in the income-tax farm schedule. Al-
though it would be desirable to total and check these columns monthly
or at the bottom of each page, it is not necessary to have this record check
with cash or bank account, provided care is taken to record everything
received, whether deposited in a bank or not. An unchecked or unproved
record is at least a little better than no record at all.
Cash payments should be entered on the right-hand page with all
amounts entered in the first column and then also distributed to the
other three columns to show the purpose of the expenditure, whether
personal, capital outlay, or farming expense. It would be an advantage
if all payments were made by check, as explained on page 13, but that
is not necessary. The important thing is to enter all farming expenses in
the farm-expense column. Small personal expenditures from pocket cash
may be omitted. Figure 2 illustrates such a cash record.
When either the left- or right-hand page is filled, a page is turned and
both cash received and paid records are continued on the next double
page, so that current receipts and payments are always on left and right
sides of the same open double page. Totals can be carried forward from
page to page until the end of the record year when final totals are made
and a new record started for the following year.
This form of cash record does not provide for further segregation of
farm incomes or expenses by kind. To obtain such detail for a farm profit
and loss statement and the farm schedule for the income-tax return, it
will be necessary to go through and relist them by kind on a work sheet
at the end of the year. Hence, this simple record in the long run requires
as much work as a cash record with distribution columns, as in the Cali-
fornia Farm Record Book in system B, or the cash journal in system C.
To figure farm profit correctly, it is necessary to supplement this cash-
book w ith some kind of a depreciation record, as explained on page 25
and illustrated in figure 10. This would also make possible the listing of
depreciation and its deduction in the farm schedule with a resulting
reduction in the income tax to be paid.
SYSTEM B, THE FARM RECORD BOOK
There are numerous special farm record or account books in use in
the United States. Some are prepared by the colleges of agriculture of
various state universities and some by other public and private organiza-
tions doing business with farmers. Most of these books, if followed as
intended, will meet the minimum needs for computing farm profit for
the year for the farm business as a whole, on either a cash-receipts-and-
disbursements basis or the inventory basis. They are all designed for
Records and Accounts 37
use by farmers with no bookkeeping or accounting training who wish to
keep their own records. They usually contain facilities for only one year
of business and always provide a cash record and complete opening and
closing inventory, including equipment and computation of deprecia-
tion. Some include supplementary records, such as the labor record, map,
and production records of various kinds. They also usually contain a
blank profit and loss statement and a net-worth statement.
The California Farm Record Book was prepared for the use of Cali-
fornia farmers by the University of California College of Agriculture
(see footnote 2, page 5). It provides facilities for recording all cash re-
ceipts and payments, both farm and personal, along with other needed
and optional farm records. It will meet most management needs, provide
material for all required reports, such as the income-tax farm schedule
and record of wages paid, and provides an interesting and useful histori-
cal record of events, financial transactions, crop yields, farm earnings,
and net worth for future reference. A person of average intelligence and
education who will sit down and make entries a few times a week should
be able to carry on this system, make the concluding statements, and fill
in the farm schedule for income tax on either the cash or inventory basis
without help. The records of cash received and paid provide for the
segregation of items into personal (or nonfarm), capital, and farm-
operating columns, and provide additional columns for further segregat-
ing farm incomes and expenses by kind. Special forms for each record
have been designed and are combined in proper proportions and with
instructions in a single book containing facilities for one year. Figures
1, 3, 4, 7, 11, and 13 illustrate some of the forms provided.
The California Farm Record Book contains practically all the records
needed by the farmer, and the inclusion of a labor record and diary
would make any other record book unnecessary. It could well be supple-
mented by a ledger containing a few desired or necessary ledger accounts
with persons or things. A pocket memorandum for field notes might also
be desirable. Also, a continuous depreciation record covering several
years as explained on page 25 could be used in lieu of part of the inven-
tory to avoid relisting each item in the new record book each year.
The California Farm Record Book is designed for the computation of
earnings on the farm business as a whole. Where this farm business is
a single enterprise, as in the case of a poultry farm or an orange orchard,
it does furnish most of the material for the analysis of that enterprise,
since the farm profit and loss statement is also an enterprise statement.
But even where there are two or more enterprises on the farm, distribu-
tion columns in the cash records and the labor record may be used in
such a manner as to obtain most of the material needed for the analysis
Records and Accounts 39
of major enterprises. With some supplemental records and estimating,
useful enterprise statements could be prepared.
Although the California Farm Record Book does contain a number
of useful records and facilities for a complete inventory and net-worth
statement, their use is not always necessary. Minimum needs may be
met by using only the cash records and that part of the inventory in
which depreciation is computed.
SYSTEM C, THE CASH JOURNAIi
The cash journal (p. 15) and the depreciation record (p. 25) are the
essential parts of system C. This system differs from system A in that
the cash journal permits the recording of debits and credits between
basic accounts and the entering of credit or noncash transactions along
with both bank and pocket-cash transactions in the sequence in which
they occur. In fact, the cash journal is really double-entry bookkeeping
in that the amount for every transaction is entered twice, a debit to one
basic account and a credit to another. But these accounts appear in the
cash journal as a pair of columns, rather than as separate pages in a
ledger. The cash journal offers greater opportunity for checking accuracy
and completeness, but it is also somewhat more work than system A. It
is preferred, however, by many California farmers who have developed
their own sj^stem. It is well adapted to the medium-sized farm business
of one enterprise or a few, where the income-tax farm schedule is to be
made on a cash rather than an inventory basis. It is especially well suited
to the farmer who wishes to enter both checks and payments from pocket
cash in the same record, and yet keep them separate (fig. 15).
- Column Headings for the Cash Journal. — Forms for the cash journal
will consist of a double page with date column, explanation space, and
from 16 to 24 amount columns in which suitable headings will be written.
Part of these columns must be devoted to the required basic accounts, a
pair to each account — the left-hand one being the debit column and the
right-hand one the credit column. Remaining columns may be used
singly or in pairs for further distribution of farm incomes and expenses
by kind. The following list of columns illustrates those that would prove
useful on a small orange and poultry farm where both bank account
and cash were used in handling the personal and farm business.
Bank account :
1. Dr. Deposits
2. Cr. Checks
("ash as separate from bank account — optional :
3. Dr. Eeceipts
4. Cr. Payments
40 California Agricultural Extension Service [Cir. 124
Personal :
5. Dr. Expenses or withdrawals
6. Cr. Incomes from personal sources
Property, capital, or assets and liabilities :
7. Dr. Capital outlays, payments on debts, etc.
8. Cr. Sales of property, debts incurred, etc.
Farming operations :
9. Dr. All farming expenses
10. Cr. All incomes from sale of farm products
Distribution columns for farm expenses in col. 9 :
11. Dr. Labor costs
12. Dr. General expense — taxes, insurance, office expense
13. Dr. Repairs
14. Dr. Automobile and truck expense — gas, oil, tires, repairs
15. Dr. Tractor expense — fuel, oil, repairs
16. Dr. Miscellaneous other expenses
Enterprise columns (a pair to each enterprise) :
Poultry (or dairy, or similar enterprise)
17. Dr. Direct expenses, feed, medicine, etc.
18. Cr. Income from above — poultry, eggs, etc.
Oranges (or pears, etc.)
19. Dr. Expenses — spraying, fertilizers, etc.
20. Cr. Incomes — fruit sales
In this illustration the first 10 columns are devoted to the 5 basic
accounts covering both kinds of cash and handling one's personal affairs,
capital items, and farming business. Columns 11 to 16 are devoted to
providing a further distribution of farm expenses not directly charge-
able to any enterprise. Columns 17 to 20 or to 24 would provide pairs of
enterprise columns for showing direct enterprise expenses and incomes.
Using the Cash Journal. — Every transaction is entered in such a way
that amounts in basic-account debit columns (nos. 1, 3, 5, 7, and 9 above)
equal amounts in basic credit columns (nos. 2, 4, 6, 8, and 10) . On begin-
ning the record, enter money in the bank and cash on hand in columns
1 and 3, respectively, and balance these with an equal amount in the
capital credit column, no. 8. If the next entry were for the payment of a
personal expense from cash, the amount would appear in column 4 as
a payment of cash, and in column 5 as a debit to the personal account.
If all items are properly entered in a debit and a credit column, the sum
of all basic debit columns will equal the sum of all basic credit columns
at any time, which proves the accuracy of the placing of the amounts,
and also the additions. The difference between the cash received and
paid totals at any time should equal the cash still on hand, unless some
Records and Accounts 41
has been lost or spent without proper entry. Likewise, the difference
between the bank debit and credit columns should equal the amount in
the checking account and may be compared with the checkbook stubs
and verified by the monthly bank statement. It is suggested that all
basic-account totals be proved correct monthly, or at the bottom of each
page.
The distribution columns for farm income and expense (cols. 11 to
24) should likewise be totaled, and all debit, or farm-expense-column,
totals proved equal to the farm-expense total in column 9, and enter-
prise-income-column totals proved equal to that of column 10. These
monthly totals may then be entered elsewhere and a new record started
each month or carried on throughout the year, to get the correct annual
totals.
Annual Summarization. — At the end of the year, annual totals of all
columns will be obtained either by adding the totals for the twelve
months or by carrying page totals forward throughout the year. Below
these preliminary annual totals, certain adjusting and closing entries
may be made. First, obtain depreciation on farming facilities from the
depreciation record and enter it as a farm expense (a debit to farm
operations), and as a credit to farm capital. Then, if expenses on a car
used jointly for personal and farm use have been charged entirely to
farm expense, make an entry crediting farm expense (put it in the farm-
expense column with a circle around it so that it will be subtracted) and
debiting the personal account for that part of the car expense that
should be charged to personal use. Inventories of livestock, products,
and supplies may be brought into the record by making the proper en-
tries ; that is, charge the opening inventory to farm expense and credit
the closing inventory to farm income. Any other necessary adjustments
can likewise be made between accounts and distribution columns so that
the final totals will show the true farm profit or loss as the difference
between the farm-income and farm-expense totals. Even enterprise profit
or loss can be shown by enterprise columns if all other farm expenses are
transferred by means of some valid basis of allocation to the enterprise-
expense columns. Farm profit and loss statements and income-tax re-
turns can then readily be compiled from the information at hand with a
minimum of reference to earlier entries.
SYSTEM D, DOUBLE-ENTRY FARM BOOKKEEPENTG
Double-entry bookkeeping is the basic procedure used in business
where accuracy and honesty must be proved and demonstrated. Trans-
actions are first entered in books of original entry, such as the cashbook
and journal. The amount involved is also entered in the ledger as a debit
42 California Agricultural Extension Service [Cir- 124
to one account and a credit to another. The number of ledger accounts
will vary with the needs of the business, but the total debits in all ac-
counts will equal the total credits if the work is correctly done. Farm
bookkeeping is this same procedure applied to a farm business for the
purpose of showing the value of the property involved and the profit
earned by farming operations for the farm as a whole.
This system has three main advantages over the simpler systems, A,
B, and C: (1) many more segregations of income, expense, property,
and debts are possible through an unlimited number of ledger accounts ;
(2) credit transactions and inventories are more systematically handled,
which tends to portray the net worth or financial status of the business
more accurately, and to place the profit more exactly in the year in
which it is earned; and (3) greater accuracy and completeness are
assured and proved. Its disadvantages lie in the technical training or
bookkeeping ability required and the greater amount of clerical work
involved in making the additional entries in the ledger and proving its
accuracy by trial balances.
System D is recommended where more than one individual is con-
cerned in the ownership of the business, and where the relation of each
to the business must be accurately determined and the profits fairly
divided. It is also considered necessary in any large business where hired
employees are involved in administration and in the handling of funds.
System D can be of greater service to the farm operator who can under-
stand it than the more simple and less complete systems. But since it
usually requires more training or time than the active farmer has for the
job, he usually has to have someone else keep the books. And unless the
books are kept on the farm for convenient use by the operator, they be-
come less valuable to him in managing his affairs. Also, unless the system
is properly formulated and the accounts are chosen to fit the farm, it
may be of little value from a management standpoint. Therefore, system
D would ordinarily be preferred over systems B or C only where the
operator or some member of the family was able to conduct it or where
the nature or size of the business required it. It is the system usually
followed where bookkeeping assistance is hired. However, where a full-
time resident bookkeeper is available, system E would be preferred be-
cause of its greater usefulness as an aid to management.
The formulating and conducting of a double-entry bookkeeping sys-
tem suited to a particular farm business would require greater mastery
of accounting procedures than could be acquired from any brief cir-
cular of this nature. Therefore, no attempt is made to explain system D
further. If the reader wants or needs a double-entry system, he will need
to secure instruction or technical assistance elsewhere.
Kecords and Accounts 43
SYSTEM E, ENTERPRISE ACCOUNTING
Farm accounting, in which profit or loss is compnted for each crop
or livestock enterprise within the farm business, is called enterprise ac-
counting. This is the most complete and useful of all farm-record sys-
tems in that it discloses management information not available in other
systems, and also it more adequately and accurately serves all purposes
attempted by any of them. It provides information on the farm business
as a whole, by the same methods and with the same results as in system
D, and in addition, shows the contribution of each enterprise to farm
profit or loss. Detailed costs on trucks, tractors, and other service units
are also obtained. A complete check on the use of materials and supplies
prevents loss and waste. System E is therefore recommended as the most
desirable system where volume of business warrants the time and ex-
pense, and where accounting ability and clerical help are obtainable.
The disadvantages of system E lie in the technical accounting ability
required to set up and operate such a system properly, the amount of
work and time involved in routine clerical duties, and the effort involved
in obtaining some of the information essential to the proper allocation
of costs to enterprises. Close contact and cooperation between the man-
ager (or operator) and the bookkeeper are essential if all information
needed for properly keeping the records is to be available. Enterprise
accounting should be done on the farm where the bookkeeper can keep
or supervise records covering the use of labor, materials, supplies, and
service units, by enterprises. Thus system E, although the best of all
available systems, is usual] .7 followed only where size of business war-
rants a full-time resident employee who can devote a major part of his
time to accounting, secretarial, and other administrative duties, or
where some member of the operator's family or a partnership can per-
form these functions. Few farm operators will find it possible to do
all the accounting work required in addition to their duties of adminis-
tration and supervision, even though possessing the requisite ability and
skills. Hence, enterprise accounting is something the farm operator
should know about and have as his goal, but it is also a system of account-
ing for which professional and clerical help will usually be required.
HINTS ON KEEPING FARM RECORDS
Fundamental principles, records, statements, and systems have been
discussed in previous sections, but it still remains to consider some other
miscellaneous hints and suggestions. These are intended largely for
those who plan to do their own record keeping and have no one but
themselves to please.
44
California Agricultural Extension Service i^^^- 1^4
Selecting a System. — The beginner would do well to start with the
simplest system that would meet his needs, such as system A or B ;
preferably B, since special farm record books contain instructions and
special forms. Only part of the book need be used at first, but as ability
and habits are developed, additional records can be added or a more
complete system undertaken.
Fig. 16. — The farmer's desk. A well-lighted and equipped desk available at
any time of day or night is one of the important aids to record keeping and
better financial management.
Obtaining Materials. — The book or record forms to be used should
be obtained well in advance of the beginning of the record year, and
reordered in plenty of time, so that one is never without facilities to
make entries as they occur.
Making Prompt Entries a Hahit. — The prompt entering of trans-
actions is a good habit well worth acquiring. And the way to form a
good habit is by repeating the act as each opportunity offers. It is most
important to make the first entry on time and thereafter to enter each
transaction without delay. Postponement not only causes lapses of
memory and errors or omissions, but the large amount of work necessary
to get the record up to date results in further and further postponement
and eventual dropping of the record. More records are discontinued
because of "getting too far behind" than for any other reason.
Desk or Place to Work. — A conveniently located and well-lighted desk
Records and Accounts 45
should be available for record keeping any time of day or night. All
handicaps must be removed and every aid should be available if the
good intention of keeping records is to become the valuable and strong
habit required. Such a desk should be reserved for this purpose only,
and business papers, mail, checkbook, record book, and other necessary
items, should always be assembled and kept at this desk. Figure 16 shows
a suitable desk.
Choice of Pencil or Pen. — The pencil is recommended for keeping
one's own records because it is more convenient, is always ready or
quicker to use, and pencil records are easier to correct. Records should,
of course, be permanent and legible, but entries made with a good-qual-
ity pencil with medium lead will meet this requirement. For records
kept for others or by employees, ink is considered essential.
Additions. — There are many amounts to add in keeping and proving
the accuracy of records on a farm business of moderate size. A small
adding machine might be found a justifiable investment in saving time
and promoting accuracy. Where an adding or calculating machine is
not available, it is well to add columns two or more times to check the
answer and also to add columns and prove totals frequently before there
are too many figures involved.
Entering Quantities. — In all farm record keeping, adequate detail
and all significant quantity and price information should be included
in the entry. Instead of "John Jones, hay, $140" the entry should read,
"John Jones, 14 tons hay at $10, $140." In reporting the sale of farm
products always record the quantity in number and total weight, and
include the price per unit, as well as the name of the person and the
amount received. Also, in the payment of wages it is well to indicate
the days or hours or units of work and the rate of pay, as well as the
total amount. Little extra trouble is involved, and such information may
be useful later in settling disputes, planning operations, or establishing
quotas.
Accuracy. — Perfect accuracy and completeness should always be the
goal in farm records, but failure to attain perfection should not be al-
lowed to slow down or stop record keeping. Small errors or omissions
that will not destroy the practical accuracy of the record may better be
ignored than allowed to consume too much time and energy in their
discovery and correction. However, it is better to estimate approximate
amounts for a forgotten item and make the entry accordingly than to
omit the entry altogether.
25m-8,'42(2109)