Book-keeping for Farmers and Orchardists. 11 // 105-93 UNIVERSITY OF ILLINOIS LIBRARY AT URBANA-CHAMPAIQN BOOKSTACKS Digitized by the Internet Archive in 2017 with funding from University of Illinois Urbana-Champaign Alternates https://archive.org/details/bookkeepingforfaOOmuss Department of Agriculture^ N. <9. Wales. March, 1893. Wl\> Book-Keeping for fanners and Orctiardists. By CHAS. T. MTJSSON, F.L.S., Hawkesbury Agricultural College. There is badly wanted amongst farmers and orchardists a simple method of book-keeping, which, without requiring the devotion of a large amount of time or trouble, will, if properly carried out, enable growers to keep in close touch with their affairs, and put them in a position to find out at any time whether they are losing or making money, not only on the whole of their transactions, but also in any one of the lines in which they may be embarked. It may be tolerably easy at times to obtain good crops of grain or fruit, but of what avail is that if the grower loses money in the transaction. A man can only find out his true commercial position, as to whether he is losing or making money, and the amount of capital invested in his business, by recording all transactions in a set of books, which, although requiring method, care, and accuracy in their compilation, need not entail more work on the, perhaps, already hard-worked orchardist or farmer, than is absolutely essen¬ tial for such an important purpose. It has been well said that “ bad book-keeping is the highroad to bank¬ ruptcy.” What, however, should be said in cases (of too frequent occur¬ rence) where no books are kept, or perhaps merely a bare statement of expenditure and receipts, entered in some memorandum-book, without even an attempt at arrangement, over which the owner pores for hours without arriving at any satisfactory conclusion as to the meaning of his mass of figures. In such cases it is impossible to find out the true monetary state of affairs, a position in which farmers or orchardists ought not to be, and need not be. An accurate knowledge as to his monetary position should be as important an object to the grower as the state of his crops. Crops are grown for the express purpose of making money, and a thorough acquaint¬ ance with the state of our affairs from a commercial point of view is most important in connection with the object in view. It needs no remarks from me to emphasise further the truths above stated. I will merely add that it appears to be nearly the rule amongst farmers to keep no proper set of books from which a balance sheet could be made out, for instance. It can hardly be doubted that when a man has a thorough grip of his affairs he is able to overlook them better, his relation to them is closer, and he stands a fair chance of succeding in his work; merely because he is able to put his finger at once on any weak spot, curtail expenditure where seen to be excessive, and encourage the development of his more paying lines. Of such points as these he could not avail himself without the necessary materials at hand, in the shape of a well-kept set of books. 115 90—93 2 Book-keeping for Banners and Orchardists. It is the object of this article to point out liow farm or orchard accounts may be kept in such a way as would enable anyone to find out a,t any time the true position of his business, and whether the transactions are resulting in profit or loss. The plan here indicated will be carried out in the simplest way possible, consistent with clearness and accuracy of results. The ordinary system of double entry is followed, the books necessary being two in number. It may be noted that the plan to be explained here is sufficient for all ordinary farm and orchard purposes. If the transactions are extensive the same method (double entry) should be followed, but the details as to books aud accounts required, would vary according to circumstances. Let us at once proceed to examine the matter in detail. The chief books, as stated, are two in number. Books. I. Day-book, also used as a Journal. Ruled with two sets of money columns to the right of each page, it is, in fact, a journal proper, used as day-book and journal combined. In this book all transactions must be entered; all purchases, sales, receipts, or pay¬ ments must be entered daily, as they occur; all these entries are to be carefully kept to the left-hand side of a double line, ruled, as shown in the example below, leaving the right-hand side of each page, with the money columns, open. So far, this book is a day-book ; it is converted into a journal merely by “journalising” the accounts therein—that is, classifying them, say every week, and entering the amounts in their proper places in the money columns, on the journal side of the page. These money columns are headed—the right-hand one Cr., the left-hand one Dr.; the accounts to be entered in the Dr. column (debited) and in the Cr. column (credited) are named in accord¬ ance with fact and convenience, as the owner may arrange. The account names are to be entered in the column prepared for same, to left of the money columns, and to right of the dotted line. The arrangement of all accounts in this way is a great convenience, and will be fully explained later. In business, it is usual to have separate books for each of the classes of transactions mentioned above, viz., sales, purchases, cash, journal, &c.; all the entries in these books being classified in the journal, ready to be posted into the ledger, or the journal may be dispensed with, the posting then being done direct from the general books into the ledger. In order to simplify matters, farmers are advised to adopt the plan here set forth, converting their day-book into a journal; a plan easily carried out by using books properly ruled and of a suitable size, as, for instance, foolscap, 8 in. x 13 in. II. Ledger. A book in which all the journalised amounts are duly posted under their proper headings. It is, in fact, a condensed and concise state¬ ment of all money affairs properly arranged. Erom it, when correctly posted, a complete statement as to transactions and monetary position can be obtained. Each page is divided into two parts; each of these parts is provided with a money column; the left side of the page is headed Dr. (corresponding with the Dr. column in the journal), the right side is headed Cr. (corresponding with Cr. side of journal). These two, with petty-cash and cash-books, are all the books really necessary for ordinary farm or orchard accounts. Books ready ruled for journal and ledger can be obtained from any bookseller in the size advised above, from about 8d. each. Several subsidiary books may be used, if so Book-keeping for Farmers and Orchardists . 3 desired ; for instance, all day-book entries might pass first through a memo¬ randum-book. A purchase invoice book is useful. Valuation and labour books should be kept, whilst a Bank-book would be so of necessity. Par¬ ticulars will be given later dealing with the books here mentioned; for the present we confine our attention to the two main books—day-book journal and ledger. General Buies. It would be well now to state the general rules regulating all entries to be observed in journalising the day-book. When journalised, the items are ready for posting (entering) into the ledger. All figures under Dr. column in journal are transferred to the ledger, being entered in Dr. column of the indicated account; all journal credit (Cr.) items are posted to the Cr. column of indicated account in ledger. Great care must be taken that the accounts in the ledger take their proper items, as the arrangement in journalising is the vital principle regulating the proper recording of all transactions. The regulating of the day-book entries, in journalising them, requires some thought; once done correctly, however, it is merely required that strict accuracy be observed in transcribing into the ledger Pull particulars concerning each item must be entered in day-book. In the case of purchases, the invoices received by owner of books should be folded up and pasted in an old book, or otherwise filed for future reference, being numbered for reference and kept in chronological order. All cheques paid away should be numbered, and the number recorded in day-book when entering up details of the payment. In posting the journalised items into ledger no details are given; the entry is made as short as possible, consistent with accuracy, indicating only the kind of transaction, as will be seen in the example given; the ledger entries being merely a condensed and correctly- arranged copy of the journalised items ; all figures, of course, being copied in full. Buies. The rules regulating the journalising of all transactions entered in day¬ book may be stated and illustrated as under:— A. Monetary Transactions. —Cash, notes, cheques, &e. All these affect the money account, which is called Cash or Bank account. 1. Incoming amounts are to be entered on the debit side (under Dr.) of the money account; this is called debiting an account; it merely consists of making an entry on the Dr. side. The item is also credited to the payer —that is, entered on the Cr. side, of the account headed by name of the party paying the amount (a so-called personal account). The two accounts to be respectively debited and credited are in each case indicated in the journal in space left for the purpose when the day-book entries are made. Example, with items Journalised. Day-Book. Journal. Dr. Cr. . Received cash from B. Davis—£110s. 1 1 Dr. —Cash account.. Ledger page. £ s. d. 1 10 0 Cr. —Davis account. The amount £1 10s. is debited (Dr.) to Cash, because all money coming in is debited to that account, indicating an addition to money in the Bank 4 Book-keeping for Farmers and Orcliardists. (all such items should he paid into Bank), whilst the item is credited to the personal account (Cr. Davis), showing that Davis has paid the amount named. In posting these items into ledger it is merely necessary to turn up Cash account therein, and enter up on the Dr. side To Davis, £1 10s., recording the journal page in ledger and ledger page in journal, in the spaces left for the purpose ; then turn up Davis’ account and on the Cr. side, enter By cash £1 10s., recording the page numbers again. The word “ To ” is always used on the Dr. side, and “ By” on the Cr. side. 2. Outgoing Amounts .—Payments for anything are to he entered to the credit (on Cr. side) of the money account, all money going out being credited to that account; they are really payments from our ready money, to he debited (Dr.) to the personal account to which the money is paid. Example, with items Journalised. Day Book. Journal. Dr. Cr. 1892. Ledger page. £ s. d. £ s. 3 19 12 0 ,, crop. 3 20 0 0 Dec. 31 J) 5) 3 4 15 O' Dec. 31 „ profit and loss ... 4 41 11 0 „ 31 ,, expenses 3 15 0 0 „ 31 ,, crop. 3 3 10 0 „ 31 „ valuations. 4 87 0 0 135 11 0 I — J 135 11 0 1891. CROP ACCOUNT. Page 140. Jan 1 To value of crop 1 80 0 0 Feb. 4 By Morris 1 11 0 0 „ 12 ,, manure l 2 10 0 June 2 „ Hopkins 2 52 10 0 Junel5 ,, Anderson 2 2 0 0 Aug. 30 ,, Davidson 2 34 13 0 Aug. 5 ,, cash—packing-cases. 2 5 0 0 Oct. 10 >> >> 3 13 0 0 „ 30 „ cash — labour 2 6 0 0 Dec. 31 ,, expenses 3 8 0 0 „ 30 ,, expenses 3 10 0 „ 31 „ stock. 3 20 0 0 Dec. 31 „ stock—manure 3 3 10 0 „ 31 „ valuations. 4 70 0 0 „ 31 „ profit and loss ... 4 103 3 0 209 3 0 209 3 0 1891. PLANT A .CCOUNT. Page 160. Jan. 1 To valuations .. 1 25 0 0 Dec. 31 By valuations 4 30 0 0 „ 5 „ Lassetter 1 4 5 0 ,, depreciation— > A c c fi Mar. 6 „ Broadbent .. 2 3 18 6 profit & loss. 5 * 9 O o Aug. 30 „ cash—labour 2 0 5 0 Sept. 7 ,, „ repairs 3 2 0 0 35 8 6 35 8 6 16 Book-keeping for Farmers and Orcliardists Dr. Ledger. Cr. 1891. Nov. 30 1891. Jan.12 Mar. 6 July 7 Sept. 7 Nov. 28 Dec. 31 „ 31 Aug. 5 Dec. 31 „ 31 31 31 31 1891. Dec. 31 1891. Jan. 1 Feb. 24 „ 30 May 6 Aug. 5 „ 30 Dec. 31 1891. Dec. 31 Dec. 31 „ 31 31 UNEXHAUSTED IMPROVEMENTS. Page 180. Journal Journal Folio. Folio. To cash—labour 3 18 0 0 1 Dec. 31 By valuations 4 21 0 0 ,, material 3 6 0 0 )> 31 ,, depreciation— 7 profit & loss ) 4 3 0 0 24 0 0 24 0 0 E XPENSES ACCOUNT. Page 200. To household stores .. 1 7 0 0 Aug. 30 By crop account 3 1 0 0 2 4 10 0 Dec. 31 „ profit and loss ... 4 60 5 0 2 5 0 0 3 14 15 0 3 7 0 0 ,, stock.. 3 15 0 0 ,, crop .. 3 8 0 0 61 5 0 61 5 0 PROFIT & LC >SS ACC( CUNT. Page 240. Loss. , Gain. Discount, Hopkins 2 0 10 0 Dec. 31 By stock. 4 41 11 c To plant . 4 5 8 6 „ 31 » crop. 4 109 3 0 „ improvements ... 4 3 0 0 „ rent . 4 50 0 0 „ expenses . 7 60 5 0 „ net gain . 4 31 10 6 150 14 0 150 14 0 * RENT ACCOUNT. Page 260. To paid cash 3 50 0 0 J Dec. 31 By profit and loss ... 4 50 0 0 CASH AC COUNT. Page 270. To balance in Bank 1 74 0 0 Jan. 12 By expenses l 7 0 0 „ B. Davis 2 1 10 0 „ 12 ,, Riverstone Co. l 2 10 0 ,, 0. Morris 2 11 0 0 „ 30 ,, Lassetter l 4 5 0 „ stock sale 2 4 4 0 Mar. 6 ,, expenses 2 4 10 0 ,, Hopkins 2 52 0 0 June 12 ,, Robinson 2 5 0 0 ,, stock sale 3 19 12 0 July 7 „ Anderson 2 2 0 0 „ ,, .. 3 4 15 0 „ 7 „ expenses 2 5 0 0 Aug. 5 ,, crop. 2 5 0 0 „ 30 „ labour 2 7 5 0 Sept. 7 ,, expenses 3 14 15 0 „ 7 ,, plant . 3 2 0 0 Nov. 28 ,, expenses 3 7 0 0 „ 30 ,, improvements 3 18 0 0 „ 30 >> ,, 3 6 0 0 „ 31 ,, rent. 3 50 0 0 „ 31 „ balance . 4 26 16 0 167 1 0 167 1 0 1 CAPITAL i YCCOUN' r. Page 290. To balance . 4 247 0 0 Jan. 1 By cash. 1 74 0 0 » 1 ,, stock. 1 68 0 0 „ 1 ,, crop. 1 80 0 0 „ 1 ,, plant. 1 25 0 0 247 0 0 247 0 0 BALANCE ACCOU1 sT. Page 295. To Davidson . 4 47 13 0 Dec. 31 By Broadbent 4 3 18 6 „ valuations . 4 208 0 0 „ 31 , capital . 4 247 0 0 „ cash . 4 26 16 0 ” 31 ,, net gain . 4 31 10 6 1 282 9 0 282 9 0 Book-keeping for Farmers and OrcJiardists. 17 All the journal items having been duly posted in ledger, we can now turn our attention to a most important matter, namely, extracting from the mass of information entered in hooks the necessary particulars for furnishing a balance-sheet. We must remember that the object of book-keeping is to be able, at any time, with tolerable ease, to find out the monetary position of a business, and see if profit is being made or money lost. To obtain this result, three things are required.—First: A record of all debts owing to owner or due by him. Secondly : An account of all money in hand, if any. Thirdly: A careful valuation of all property: these requirements to be now considered. The first and second requisites we can obtain at once from the ledger, and in order the more easily to do this the ledger balances should be extracted. A list of all accounts in the ledger must be made, and two series of money columns prepared, ruled as in ledger or journal, preferably as in example shown below. That on the left corresponds to Dr. side of ledger ; that on the right to the Cr. side of ledger. Taking now the totals of all ledger accounts separately, we place them in proper position, to their own account in the so-called trial balance. All ledger credit totals are placed on the Cr. side, and all debit totals on the Dr. side, taking care that each account receives its proper totals. The two columns of figures are then added up. If the totals correspond, and are also found to correspond with the journal totals, the double entry has been properly carried out, and we may take it that the ledger has been correctly posted. This constitutes the taking out of the trial balance. Many of the accounts will not agree in their Dr. and Cr. totals. It will be necessary to consider these accounts in detail, in order to obtain the requisites for trial balance as explained above. Should the totals of Dr. and Cr. columns in trial balance not agree, the error must be looked for until found, and the necessary corrections made. Unless the books are perfectly correct, a true statement of affairs cannot be arrived at. December 31,1891. Dr. Trial Balance. Cr. £ 8. 4 5 d. 0 Accounts. P Lassetter Ledger folio. 1 £ s. 4 5 d. 0 2 10 0 P Riverstone Co. .. 10 2 10 0 11 0 0 P Morris 20 11 0 0 1 10 0 P Davis 30 1 10 0 P Broadbent 40 3 18 6 52 10 0 P Hopkins .. 50 52 10 0 5 0 0 P Robinson 60 5 0 0 2 0 0 P Anderson 70 2 0 0 47 13 0 P Davidson 80 94 0 0 Py Stock 120 48 11 0 100 0 0 Py Crop 140 139 3 0 35 8 6 Py Plant 160 24 0 0 Py Improvements .. N Expenses.. 180 ........ 61 5 0 200 1 0 0 0 10 0 N Profit and Loss .. 240 50 0 0 N Rent 260 167 1 0 Py Cash N Capital .. 270 140 5 0 290 247 0 0 £658 12 6 £658 12 6 The accounts represented in trial balance (given above) are “ Personal,” P.; “ Property,” Py.; and “ Nominal,” N. From the personal accounts (the balance gives summary only) we can find out all debts due to or by the B 18 Book-keeping for Farmers and Orchardists. owner of books. Lassetter, Riverstone, Morris, Davis; all these accounts balance, nothing owing on either side. Broadbent, Cr. £3 18s. 6d. This means (refer to journal) that owner owes to Broadbent the amount named ; it is therefore a “ liability.” Hopkins, Robinson, Anderson; these accounts all balance. Davidson, according to ^?dger, is Dr. £47 13s. He owes owner of books that amount. This, therefore, is an asset, and concludes the personal accounts. The only book debt, therefore, is this one, whilst owner owes one small amount— Broadbent, £3 18s. 6d. Stock, Crop, Plant, and Improvements are Property accounts, to be consi¬ dered under valuations presently, the amounts set down under Dr. meaning, as before explained, expenses; amounts under Cr. meaning receipts. At present we only require debts and money in hand. The former are found ; to find the latter we turn to cash account. Dr. total £167 Is. means money received into business and placed in Bank. Cr. £140 5s. means money paid out of what has been placed in Bank ; therefore, there still remains in the Bank, to the credit of owner of books, £26 16s. Expenses, Profit and Loss, Rent, and Capital, are nominal accounts that for our present purpose need no consideration; they tell the amounts expended or received, &c., under each head, and are extremely useful, as will be seen presently in explaining how the money received, has been spent. The only thing now needful for construction of a balance-sheet is a proper valuation of all property. Below is a copy of valuations made for the purpose required, giving a total of £208. It is a good plan to keep some book in which all such records can be permanently written. As this is a matter to be referred to again (see valuations, later), and we have now all the necessary items, we will at once construct the balance-sheet. Take a sheet of paper, ruled precisely the same as a page in the ledger. We head the left-hand column “ Liabilities,” and the right-hand column “ Assets.” Under the first head we put down all debts due by owner ; in this case one item only—Broadbent, £3 18s. 6d. Under assets we enter particulars as to—(1) All money due to owner. (2) All money in hand or in the Bank. To these must be added—(3) The amount at which all his property is valued. Here we have a full statement—all we are seeking for—of all the owner’s property or capital, whether money in hand, money due to him, or money invested in stock or other property. Deducting all liabilities from the gross value of his assets we arrive at the net amount of capital in the business under consideration; represented, as already stated, by cash, book debts, and property—the two former extracted from the books, the latter arrived at by simply valuing all his property, including stock, crop, &c., at a given date. It may be necessary at times to make some special arrangements in connection with balance-sheet. Eor instance, owner may be working with borrowed’ capital, in which case interest on the amount of such capital employed must be charged to the debit of Profit and Loss account, thereby becoming a liability, causing the balance to be reduced by the amount of the interest; or an interest charge may be made by owner on the amount of capital employed; this also goes down as an expense for the year, but such would not be necessary for a farmer dependent upon his yearly gain for a living ; the gain would no doubt be mostly, if not all, spent on household and farm expenses. The balance-sheet shows, therefore, the actual state of Williams’s affairs. It does not show how he made and' spent the money, but it does show the actual amount of money he has invested in his business at a given date. A Book-keeping for Farmers and Orchardists. 19 full statement as to the amount of gain and of expense during the period of time under review, together with full particulars as to how the money- made has been expended, is obtained from the profit and loss account when it is fully made up. How this is done will be seen presently in the process of closing the ledger. Balance-sheet. Dr. Cr . 1891. Dec. 31 Liabilities. To Broadbent £ s. d. 3 18 6 1891. Dec. 31 Balance in my favour, See 278 10 6 being net amount of my capital, repre¬ sented by cash, book debts and property. page 295, ledger. £ 282 9 0 Assets. By balance in Bank .. ,, book debts, Davidson .. „ valuations. ,, stock .. £87 ,, crop .. 70 ,, plant .. 30 ,, improvement 21 & s. d. 26 16 0 47 13 0 208 0 0 £ 282 9 0 Having obtained the balance-sheet, it is now necessary to “close the ledger,” and arrange what entries require to be made in opening it for the succeeding year (1892). This cannot be properly carried out until the amount of net gain or loss has been found; we have it in the difference between net capital of January 1st, 1891, and that of December 31st, 1891. In closing the ledger we first give the property accounts credit for the amounts as given in the valuation-book, and used in the balance- sheet, the total, £208, being divided between—Stock, £87 ; Crop, £70; Plant, £30; Improvements, £21. These amounts having been credited to the various property accounts, the total amount should be debited to a nominal account opened for the purpose, and called “Balance account,” really a copy of the balance-sheet, showing, however, on Dr. side, instead of the net capital at end of year, £278 10s. 6d., the two items—Capital, January 1st, 1891, £247 ; net gain during year, £31 10s. 6d.; otherwise the two, balance account and balance-sheet, tally exactly. These entries may be made first in the ledger, and a copy taken in the day-book, all items to be journalised as posted; the page in journal containing these and the following entries to be headed “ Finishing entries.” These always come at the end of the yearly transactions, and should be entered up immediately the balance-sheet is satisfactorily worked out. This proceeding, the closing of the ledger, is not absolutely necessary, but for the books to be precise, neat, and presentable, the ledger should be properly closed. Now, let us take the other necessary items and record them. Wherever there is not the same total amount entered on both sides of the ledger, the amount necessary to make the two sides even, or “ the balance ” is to be filled in, and a copy of the entry taken in journal. The double-entry system must be carried out in connection with these closing entries precisely as in the case of the year’s transactions. Having made an entry in order to close an account, or make it balance, the same amount must be inserted in.some other account on the other side, so as to make a Dr. and a Cr. entry for each amount. Referring to the ledger, we find Broadbent’s account requires an entry of £3 18s. Gd. on the Dr. side 20 Book-keeping for Farmers and Orchardists. to close it; this item must be entered also on the Cr. side of “ Balance account.” In the former case we write, To balance, in connection with the entry; in the latter case, “ By Broadbent this is copied into the journal, in full, with all necessary particulars. A rule may be here stated as to regulation of the second entry in closing the ledger: two accounts only, will take all the items, viz., “Balance,” and “ Profit and Loss.” The latter will take all items directly classified as expenses or gains ; the former takes all items found in balance-sheet (refer back for explanation re net gain for the year). As the first entries are made in ledger, they can be copied in journal, and a line left for indicating the second account to which item is to be posted. The posting to the two accounts named in rule above, may be deferred until all ledger accounts are closed, save these two. Davidson’s Account requires an entry on Cr. side of £47 L3s., the entry is made, by balance, £47 13s., and a record taken in journal; the second entry will be in Balance account, Dr. to Davidson, £47 13s. StocTc Account requires an entry of £41 11s. on the Dr. side. This is net gain on stock for the year. The closing entry will be, To balance, £41 11s. The second entry is to be on Cr. side of Profit and Loss account ( see rule above), By stock, £49 11s. Crop Account. —Pinishing entry, on Dr. side, To balance, £109 3s.; second entry, Cr. Profit and Loss account, By crop, £109 3s. This is gain on Crop during the year. Plant Account. —Pinishing entry, credit Plant with, By balance, £5 8s. 6d. This is depreciation, and the second entry will be Dr. Profit and Loss account, To plant, £5 8s. 6d. Pent Account. —We balance ledger by crediting the account with £50. By balance. Second entry will be in Profit and Loss account on Dr. side. It is an expense. To rent, £50. Capital Account. —Finishing entry is on Dr. side. To balance, £247. Second entry will be in Balance account on Cr. side. By capital, £247. Cash Account. —Pinishing entry is on Cr. side. By balance, £26 16s. Second entry is in Balance account on Dr. side. To cash, £26 16s. Expenses account must be treated exactly same as rent, the second entry going to Dr. of Profit and Loss account. This done, it only remains to see that all items have been correctly copied into the journal, and that all the necessary items to complete the double entries are correctly posted into the “ Profit and Loss ” and “ Balance ” accounts. It will then be found that Profit and Loss account requires an item of £31 10s. 6d. on the Dr. side to balance it, whilst Balance account requires the same amount on the Cr. side in order for it to balance. This amount is the net gain for the year—the amount of profit remaining un¬ expended ; it is the difference between the net capitals of January, 1891, and December, 1891. This will require to be entered. These two entries of the net gain made, and a copy taken in journal, the ledger is closed. All accounts balance, and can be ruled off. A copy of the Profit and Loss account can be made out under name of Profit and Loss sheet if so desired, showing amount of profit made in the various property accounts, and the amounts disbursed in expenses on the different accounts: a most valuable record. The property accounts tell their, own story on inspection, as to whether they are paying or not. Below are the “ finishing entries ” fully journalised. Book-keeping for Farmers and Orchardists , 21 Day-book. Page 4, Items Journalised. Account Ledger Finishing Entries. Posted. Folio. £ s. d. £ s. d. Value of stock, &c., this dav. Dr.—Balance 295 208 0 0 Cr.—Stock .. 120 87 0 0 Cr.- Crop 140 70 0 0 Cr.—Plant 160 30 0 0 Cr. —Improvements 180 21 0 0 P. Broadbent . Dr. —Broadbent 40 3 18 6 Cr.—Balance 295 3 18 6 Davidson. Dr.—Balance 295 47 13 0 Cr.—Davidson 80 47 13 0 Stock . Dr.—Stock 120 41 11 0 Cr.—Profit and Loss 240 41 11 0 Crop. Dr.—Crop 140 109 3 0 Cr.—Profit and Loss 240 109 3 0 Plant . Dr.—Profit and Loss 240 5 8 6 Cr.—Plant 160 5 8 6 Improvements Dr.—Profit and Loss 240 3 0 0 Cr.—Improvements 180 3 0 0 Rent. Dr.—Profit and Loss 240 50 0 0 Cr.—Rent 260 50 0 0 Capital . Dr.—Capital 290 247 0 0 Cr.—Balance 295 247 0 0 Cash. Dr.—Balance 295 26 16 0 Cr.—Cash 270 26 16 0 Expenses. Dr.—Profit and Loss 240 60 5 0 Cr.—Expenses 200 60 5 0 Net gain „ . Dr.—Profit and Loss 240 31 10 6 Cr.—Balance 295 31 10 6 Total amount, finishing entries £ 834 5 6 834 5 6 The books being satisfactorily balanced, and properly closed, nominally on December 31, 1891, possibly not until some days later, Williams opens his day-book journal on January 1, 1892, with the following entries, shown below properly journalised, and ready for posting into ledger. The items are taken from his balance-sheet, and show at a glance exactly how on the date given, his capital is invested. Page 5 . Day-book. Items Journalised. Dr. Cr. Posted to ledger Ledger £ s. d. £ s. d. 1892. accounts as under. page. Jan. 1.. My books to be opened with the foilowing items obtained from Balance taken Decem¬ ber 31, 1891. (See p. 295 ledger.) Money in Bank .. .. £26 16 0 Dr.—Cash 26 16 0 Cr. Valuations--Stock .. .. £87 0 0 Dr.—Stock .. 87 0 0 Cr. Crop .. .. £70 0 0 Dr.—Crop 70 0 0 Cr. Plant .. .. £30 0 0 Dr.—Plant 30 0 0 Cr. Improvements.. £21 0 0 Dr.—Improvements 21 0 0 Cr. Total amount of capital in the business, represented by cash in Bank, value of Stock, Crop, Plant, and Improvements, together with all debts due to me, less all debts due by me, £278 10s. 6d. Cr.—Capital 278 10 6 I owe Broadbent £3 18s. 6d. Cr.—Broadbent .. 3 18 G Davidson owes me £47 13s. Dr.—Davidson 47 13 0 282 9 0 282 9 0 22 Book-keeping for Farmers and Orehardists. When the opening entries for the year 1892 have been duly posted, as directed (see journalised items), the transactions for 1892 can be proceeded with, to be first entered in day-book, then journalised, and finally posted into the ledger, according to the rules observed in double entry. These particulars conclude the explanation as to how to keep farm-books in a simple way, yet with strict accuracy. It is thought advisable, however, to give additional information with regard to some of the subsidiary books, such as are of importance to farmers. Valuation-book. In valuing his own property (live stock, plant, improvements, &c.), great care should be taken to set it down at its true market value, as near as can possibly be ascertained. A valuation by some independent qualified person would be advisable, should any occasion arise warranting such a course. A man may be given to partiality, from a naturally sanguine idea as to the state of his affairs, condition of his stock, &c., possibly over-estimating values in consequence, a position of affairs to be carefully guarded against. Speaking generally, at the end of each year (or at such time as it is desired to close the books and ascertain the exact state of affairs), the owner should take his valuations carefully, and enter full particulars in a valuation-book, kept for the pur¬ pose. Such entries should give a correct statement of everything in the way of property, being required for the purpose of drawing up the balance-sheet. In the valuation of implements full allowance should be made for wear and tear, the amount representing their depreciation in value being proportionate to the length of time during which they may remain in use. Por instance, a plough may cost, in the first instance, £4 10s., and each year for three years it may cost £1 in extra attachments and repairs. At the end of (we will say for the sake of illustration) three years it is worn out. It should be valued at the end of the first year at two-thirds of its total cost up to that time— (£4 10s. -f- £1 = £5 10s., less one-third = value at end of twelve months, £3 13s. 4d.; at end of second year, at one-half its value end of previous year, with the year’s expenses (£1) added, namely £3 13s. 4d. -f- £1 = £4 13s. 4d. — 2 — £2 6s. 8d., value ; at the end of the third year it is to be considered of no value at all. Thus we divide the total cost equitably over the three years during which the implement is in use, making it, as we say, “pay for itself,” an expression used to indicate that the cost of it has been properly set down to expenses spread over a series of years. This principle should be adopted in case of all valuations when making out the balance-sheet (except, of course, in the case of live stock), crediting the estimated value to the property account interested, and debiting the balance remaining (depreciation) to Profit and Loss account. (See ledger, Plant account.) Of course, something may be obtained for old implements, if only the price of old iron; in such case the amount received should go to the credit of its property account. Such a method of calculating values is very necessary, especially so when there is a desire to sell out from a leased farm. If tenant right is recog¬ nised, that is, the ownership by the lessee of all improvements made by him, it is absolutely essential. In the valuation of improvements the basis of calculation lies in the fact that such improvements must be unexhausted. They represent capital invested for reproductive purposes, but existing only for a time, which may be short or long, according to circumstances. The amount expended on such Book-keeping for Farmers and Orchardists, 23 improvements represents their value at the time carried out, but this value will diminish with lapse of time, as the period approaches when it is assumed that their usefulness will altogether expire. In the books, this wearing out of the invested capital should be regulated as here explained. Suppose Williams expends £70 on drainage during 1892, he having seven years of his lease to run. He calculates that this £70 thus laid out has im¬ proved his land to the extent of £10 per annum for the seven years he is to retain it. He reckons on obtaining from the land an increase in his crops sufficient to cover the total outlay and interest on the same, thus recouping himself for the outlay by increased returns, due to his expenditure in improvements. On 1st January, 1893, he values the unexhausted portion of his drainage improvements at £60, whilst each succeeding year the value is reduced by £10. Each year, when making up his books, he credits his improvement account with £10, being the calculated amount of depreciation, in value per annum, and he debits this £10 to the expenses of the current year. Capital is therefore represented by so much, invested in improvements, the amount of capital invested in this way being reduced each year as the improvements wear out. At the end of 1898 his ledger would show in this account entries as follows :— Unexhausted Improvement Account. Cr. Dr. 1892 To Cash expended in draining.. £ s. d. 70 0 0 1892 Dec. 31 1893 To Valuation . 60 0 0 1893 Dec. 31 1894 To Valuation . 50 0 0 1894 Dec. 31 1895 To Valuation . 40 0 0 1885 Dec. 31 1896 To Valuation . 30 0 0 1896 Dec. 31 1897 To Valuation . 20 0 0 1897 Dec. 31 10 0 0 1898 Dec. 31 By Depreciation „ Valuation By Depreciation „ Valuation By Depreciation ,, Valuation By Depreciation „ Valuation By Depreciation ,, Valuation By Depreciation „ Valuation By Depreciation .. £ S. d. 10 0 0 60 0 0 10 0 0 50 0 0 10 0 0 40 0 0 10 0 0 30 0 0 10 0 0 20 0 0 10 0 0 10 0 0 •• 10 0 0 The expense, instead of being charged to one year, is thus spread over seven years, and in 1899 there will be no further need to charge any expense for drainage (unless further work has been carried out) against his profits, even if he retain the farm for a further term of years ; whilst the effect of the improvements carried out may still exist; the land may benefit for a considerable time after 1898, owing to work carried out in 1892. This method of dividing large items of expenditure over a term of years may be advantageously carried out in the case of fencing, building, or any payments made under the head of unexhausted improvements ; and if the lessee is selling out he has a right to demand fair market value for his improvements, supposing the same to be unexhausted, basing his calculations upon the ledger entries, made according to the plan here set forth. 24 Book-keeping for Farmers and Orchardists . Below is a page from valuation-book, giving in outline, particulars as to the way in Avhich such records should be kept, more particularly, however, relating to such forms of property as Stock, Crop, and Plant. V ALUATION-BOOK. Valuations taken, 31st December, 1891. Live stock— £ s. d. £ s. d. 1 horse . VHV near shoulder. 14 0 0 10 milking-cows . £5 each 50 0 0 4 calves .. . 10s. each .. 2 0 0 1 bull. 10 0 0 6 pigs. Half Berkshire £1 each 6 0 0 14 sucking-pigs . 3s. each 2 2 0 Fowls. 2 18 0 87 0 0 Page 4— Crop- Day-book. Maize . 300 bushels in barn 2s. per bushel 30 0 0 Hay. 14 tons in stack .. £2 per ton .. 28 0 0 Various . In ground and on 12 0 0 trees. 70 0 0 Plant— 1 spring-cart. £12 .. 12 0 0 2 ploughs . £3 each 6 0 0 2 harrows £2 each 4 0 0 1 corn-sheller . £5 .. 5 0 0 Other tools .. 3 0 0 30 0 0 Improvements— Drainage . Work done this year—value. £24 : depreciation, at : rate of £3 per annum, from 1st January, 1891. Present value .. 21 0 0 „ Total valuations £ 208 0 0 (See Balance account.) Labour-book. Payments for labour may be a large item in the expenditure on a farm, varying in amount from time to time, and in the object for which incurred. A well-arranged book, in which all such amounts as are paid for labour can be entered, offers expedition in classifying the payments, and facilitates transference to the day-book journal, in addition to furnishing an accurate record of work done by the men employed. A man may during the course of a week be employed at very different kinds of work. Each department on the farm should have the amount expended in labour for its benefit, duly charged to its expenses (the amount being debited to the property account and credited to the money account). Under systematic arrangement it is easy to show the extent to which each account should be debited for the period under review. We must, of course, consider that in debiting any items representing expenditure for labour, to Crop, Stock, or other property account, that such property has really benefited by the amount expended on it. Daily records should be kept as to the time devoted to each branch of work, the necessary entries being made in the labour-book ; before paying any wages the book should be made up for the week or fortnight, as the case might be. The necessary condensed particulars should then be entered in the day-book, journalised, and finally posted in the ledger. Below is a specimen page from a labour-book showing a total of £7 5s. expended on labour (as entered in Williams’s books; see his journal under date 30th August). It will be seen that records can be kept down to a single hour ; and every shilling of expenditure should be correctly registered, in order that it may be debited to its proper account. Book-keeping for Farmers and Orchardists. 25 Labour-Book. Week Ending. Aug. 30 Name of Labourer. How Engaged. g Eh A. Brown.. J. Allsop .. P. Maher.. S. James .. H. Watson. Reaping . Attending Cows. Reaping . Reaping . Plant Reaping . Reaping . Attending Cows. 1 1 1 1 i i 1 1 1 1 1 1 II 20 /-& food. 6/- a day. 6 - a day. 1/- an hour. 7/- a day. 20 /-& food. Debit in Ledger as under. 20 /- 36/- 41/ 28/ 20 /- 145/- 3/4 16/8 5/- 16/8 36/- 36/- 28/- 3/4 120/- 5/ Remarks. Food debited to Crop account. Aug. 30. Page 3, in day¬ book. Five hours mending ploughs. Food debited as above. See day¬ book, page 3. Total amount paid for wages. See day-book, page 3. Debited to Stock. „ to Crop. ,, to Plant. See day-book, page 3. In conclusion, I may say that the principle of double entry herein explained is the basis of all good book-keeping. The number of different books to be used, with other details, must be, to some extent, left to the good sense and discretion of the owner. It should always be borne in mind that well-kept books are a distinct stepping-stone to success, not because the books are in themselves neat and precise, but because the man who takes care that his books are thoroughly up to the mark must of necessity be a careful man, and, as already stated, he must, necessarily, be fully acquainted with all the details of his business. One more word : the plan here set forth only represents a small portion of what could be said on the subject—giving one example, and fully explaining all details connected with it—as specially applicable to the needs of farmers and orchardists, who cannot give the time necessary for keeping an elaborate set of books; enough has, it is believed, been given to fully elucidate the matter so far as it has been taken. The typical set of accounts made use of as an example forms the text around which the whole scheme is gathered; whilst detail has been entered in the day-book journal example, that, as a matter of fact, after a short practical experience might be considerably curtailed. I sincerely trust that this small effort in the direction of throwing light on what is looked upon as a most difficult and intricate matter may be found of use by those for whom it is intended. Correct book-keeping, like many another branch of knowledge, is not easily understood when viewed from afar. Once, however, the initial difficulties are overcome, and the underlying principle mastered, book-keeping becomes not only easy to carry out, but a positive liking for it sets in, and what was before called work soon becomes a pleasure. Sydney: Charles Potter, Government Printer.—1893.