nigeria farm accounting

8/12/2019 Nigeria Farm Accounting

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NATIONAL OPEN UNIVERSITY OF NIGERIA

SCHOOL OF SCIENCE AND TECHNOLOGY

COURSE CODE:AEC 306

COURSE TITLE:FARM RECORDS AND ACCOUNTING

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Course Code: AEC 306

Course Title: Farm Records and Accounting

Course Developer Dr Joseph lumide seni

!riter Department o" Agricultural Economics and E#tension$

Federal %niversit& o" Technolog&

'() *0+$ A,ure

ndo -tate.

Course Editor:

'rogramme /eader:

Course Coordinator:

ATA/ 'E %2ER-T F 4ERA

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CONTENTS PAGE

ntroduction...3

!hat &ou 7ill /earn in this course...3

Course Aim...3

Course 89ectives.+

!or,ing through this course.+

The Course (aterial..

-tud& %nits6

'resentation -chedule...6

Assessment6

Tutor;(ar,ed Assignment.*

Final E#amination and 4rading.*

Course (ar,ing -cheme

'roduction Accounts

Farm Resources Added inputs Farm utput

Resource nventories E#penses ncome


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o"ten are used as collateral "or a loan. A resource inventor& provides a help"ul summar&

o" those assets to 8e used as collateral.

Finall&$ 7ith an up;to;date inventor& o" &our "armHs resources$ &ou can consider

options "or gro7th and diversi"ications more care"ull& and e""icientl&.

P&!")ti!' A))!"'t(.

'roduction Accounts are used to measure the per"ormance o" crop and livestoc,

enterprises on the "arm$ some production in"ormation can 8e derived "rom income and

e#pense records$ "or e#ample 7here total ,ilogramme purchased might 8e noted. This

in"ormation 7hile use"ul$ usuall& is not speci"ic or complete enough. (ore detailed

production accounts can and should 8e ,ept$ usuall& classi"ied as crop$ livestoc, or

la8our records.

"ten included under crop records are "arm maps. Farm maps are used to descri8e

soil conditions cropping patterns$ "ield la&outs and 8uilding locations. ther 7ritten crop

records sho7 crop rotations$ &ields$ "ertiliBer rates and pesticide applications. This

in"ormation can 8e summariBed and 7ill indicate the e""icienc& o" production.

/ivestoc, and poultr& records usuall& include su8sections "or mortalit&$ 8reeding$

per"ormance and "eed in"ormation. (ortalit& records list the num8er o" livestoc, and

trac, disease pro8lems. )reeding records ensure that onl& superior individuals or groups

o" individuals are used to parent o""spring 7ith desired characteristics.

'er"ormance records "or livestoc, are divided 8et7een 8irth and productive

in"ormation. )irth records indicate date o" 8irth$ important dates in the animalHs li"e$

parental evaluation and 7eaning in"ormation. 'roduction records re"er more directl& to

herd siBe$ rate o" gain$ ,ilogramme sold and purchased.

Finall&$ "eed records are important in evaluating overall production e""icienc&.

Feed normall& constitutes at least 0percent o" the total cost o" raising an animal "or

meat. The t&pe o" "eed ration$ its "ormulation and the rate o" "eeding should 8e monitored

closel&.

Another ma9or categor& o" production record ,eeping is la8our. /a8our records

are important particularl& 7hen la8our shortages are a pro8lem. )& ,no7ing the amount

and timing o" la8our reuired per operation o" an enterprise &ou can 8etter plan 7hat

enterprises are "easi8le 7hen "aced 7ith la8our constraints on the "arm.

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I')!*% a' E74%'(% R%)!&(.

A transactions 9ournal and general ledger are use"ul "or recoding income and

e#pense records. n the transactions 9ournal$ &ou record "inancial transactions as the&

happen. n the general ledger$ &ou 8egin organiBing &our "arm records into a meaning"ul

"ormat. mportant uses o" the transactions 9ournal and general ledger are to provide

in"ormation "or the income statement and cash "lo7 statement. !ith the income

statement$ &ou can calculate "arm pro"it. The cash "lo7 statement is a summar& o" the

timing and "lo7 o" aira in and out o" the "arm 8usiness. t helps &ou meet cash

o8ligations.

For most "armers$ a simple &et suita8le transactions 9ournal is the "arm

chec,8oo,. t helps &ou ,eep trac, o" the ma9orit& o" income and e#pense transactions

needed "or a complete set o" records$ 7ith the in"ormation "rom the transactions 9ournal

the "armer organiBes cash receipts and e#penses in the general ledger 8& date and

categor&.

+.0 C!')$"(i!'

n this unit$ 7e have leant that accurate and up;to;date records are essential to

success"ul "arm management. Records are used among others to: evaluate past

per"ormance o" the operation$ provide a "inancial picture o" the present situation$ and

serve as a planning guide "or "uture decisions.

.0 S"**a&

n this unit$ 7e have learnt that:

There are three 8asic t&pes o" "arm records: resource inventories$ production

accounts o" livestoc, and crop operation$ and income and e#pense records

Farm records are used among others to : evaluate past per"ormance o" the

operation$ provide a "inancial picture o" the present situation and serve as a

planning guide "or "uture decisions.

6.0 T"t!& Ma&/% A((i'*%'t

1. -tate and e#plain the various t&pes o" "arm records

5. -tate and e#plain the various uses o" "arm records

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;.0 R%5%&%')%( a' Oth%& S!"&)%(

anson J.C$ D.($ Johnson and ).2. /esle& @1>>1: Developing and mproving our

Farm Records. Fact sheet ' +5$ (ar&land Cooperative E#tension$ %niversit& o"

(ar&land.

Jose$ ' @1>>+: Financial Record Leeping -o"t7are Revie7. Te#as Agricultural

E#tension -ervice )ulletin ) ? 0$ Te#as A and ( %niversit& s&stem$ (a& 1>>+

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U'it 3: D%%$!4i' a' i*4&!i' 5a&* &%)!&(

1.0 ntroduction

5.0 89ectives

3.0 The 8od& o" the %nit3.1 Developing "arm Records

3.5 mproving "arm Records

+.0 Conclusion

.0 -ummar&

6.0 Tutor (ar,ed Assignments

*.0 Re"erences and other sources

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1.0 I't&!")ti!'

n this unit &ou 7ill learn a8out developing and improving "arm records. ou 7ill

8e acuainted 7ith record ,eeping and record anal&sis$ selecting a record ,eeping s&stem

and comparison o" the hand and computer s&stem o" record ,eeping.

5.0 O,-%)ti%(

t is e#pected that$ at the end o" this unit$ &ou should 8e a8le to:

E#plain the concept o" record ,eeping and record anal&sis

Compare the hand and computer s&stem o" record ,eeping

E#plain ho7 "arm records can 8e improved.

3.0 Th% ,! !5 th% U'it

3.1 D%%$!4i' 5a&* &%)!&(

Record ,eeping re"ers to ,eeping$ "iling$ categoriBing and maintaining "arm

"inancial and production in"ormation.

Record anal&sis re"ers to evaluating "arm records. The evaluation process allo7s a

"arm manager to ma,e in"ormed decisions 8ased on actual @or pro9ected "arm

per"ormance. 8viousl&$ record anal&sis cannot ta,e place 7ithin "irst ,eeping records.

The hand s&stem and the computer s&stem are the t7o methods o" developing and

,eeping "arm records.

3.1.1 Th% ha' ((t%*

A large num8er o" hand s&stems are availa8le. ne o" the simplest s&stems

involves the recording 8& hand o" all "inancial transactions in a 9ournal "ormat. 'urchases

and sales activities are listed 8& hand as the& occur. The enterprises sho7 the date$ the

item involved @uantit&$ siBe etc and cash involved in sale or purchase.

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Ta8le 1: E#ample o" 7hole "arm Record ,eeping

ncome E#pense

Date Description Calves Cull

Co7s

(aiBe Feed -upplies Fuel

10=1 -old 10 calvesat 10$000

100$00

10=1 'urchased "eed

@5 tons

+0$000

10=3 -old 5 co7s at

60$000

150$000

10=6 'urchased

supplies

50$000

10=< 'urchased 100

litres o" "uel

>*$00

10=11 -old 5000,g o"

maiBe

500$000

For e#ample Ta8le 1 portra&s a 7hole;"arm record;,eeping s&stem. The date and

a short description o" each transactions are listed "irst "ollo7ed 8& the aira amount o"

each transaction under the appropriate income or e#pense categor&. The num8er o"

income and e#pense categories depends on the amount o" speci"icit& desired 8& the "arm

manager.

Ta8le 5 is smaller to Ta8le 1 8ut adds an enterprise accounting section. n

addition to the income and e#pense categories$ the transaction is also listed in an

enterprise categor&. For e#ample$ the purchased suppliesK e#pense o" 50$000 is "irst

listed under the supplies categor&. )ut 16$000 o" the e#pense is listed under co7=cal"K

e#penses and +$000 is listed under maiBe. Again the num8er o" enterprises used

depends on the amount o" detail desired 8& the "arm manager.

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Ta8le 5: E#ample o" Enterprise Record Leeping

ncome

ncome E#pense Enterprises

Date Description Calves Cull

Co7s

(aiBe Feed -upplies Fuel Co7=Cal"

ncome E#pense

(aiBe

ncome E#

10=1 -old10 calvesat 10$000

100$000

10=1 'urchased"eed@5 tons

+0$000 +0$000

10=3 -old 5co7s at

60$000

150$000 150$000

10=6 'urchasedsupplies

50$000 16$000 +

10=< 'urchased100 litreso" "uel

>*$00 5$00 >

10=11 -old5000,g o"maiBe

500$000 500$000

Regardless o" the s&stem selected$ entries should 8e made regularl&. n addition$

disciplining onesel" to ma,e eas& transaction through a 8an, chec,ing account 7ill ease

record ,eeping di""iculties. And reconciling 8an, statements 7ith "arm records ensures

accurac&.

3.1.2 C!*4"t%&i


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and accuratel& sort and report a great deal o" in"ormation. The& can also provide monthl&

or annual summaries "or identi"&ing strengths and 7ea,nesses o" an operation

Ta8le 3: Comprise o" the hard s&stem and ComputeriBed s&stem o" record ,eeping

and -&stem Computer -&stem

/o7 initial out;o";poc,et e#pense

Eas& to implement

Time consuming

(ore opportunities to ma,e mista,es

/imited in e#tent o" anal&sis 7ithout

e#traordinar& investment o" time and e""ort

igher initial out;o";poc,et e#pense

(a& reuire signi"icant stud&

Fast

Accurate

Can 8e a po7er"ul anal&sis tool

3.2 I*4&!i' Fa&* R%)!&(Accurate records are essential "or evaluating &our "arms per"ormance: accurate

anal&sis reuired accurate data. Too o"ten "armers rel& on pu8lications 7hich descri8e an

average "arm instead o" personal records that descri8e their "arm. To ma,e the 8est

"inancial decisions concerning &our "arm$ use data collected "rom &our "arm. t is possi8le

to ma,e the 9o8 o" record ,eeping easier 8& using "orms and accounting s&stems designed

especiall& "or the "arm. A good source "or record ,eeping 8oo,s is &our local e#tension

agent or agricultural lender. Also so"t7are pac,ages "or "arm record ,eeping can 8e

purchased "or &our personal computer.

Accurac& is 9ust as important in management record ,eeping as in ta# and

"inancial record ,eeping. " the management in"ormation isnHt accurate$ it ma& do more

harm than i" &ou didnHt have it at all. !ith ph&sical uantities$ chec, sheets are

recommended as a tool "or testing the eualit& o" the sources and uses o" uantities and

there8& testing the accurac& o" uantit& in"ormation. The sources=amount o" account "or

should eual or at least closel& appro#imate the uses=amount accounted "or. Muantit&

sources t&picall& include 8eginning inventor& ualit&$ uantit& purchased$ uantit&

produced and uantit& trans"er in "rom other production enterprises=production centers.

%ses t&picall& include: uantit& sold$ uantit& "ed i" "eed or grain$ uantit& spoiled or

death loss in livestoc,$ uantit& trans"erred out to other enterprises= production centers$

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and ending inventor& uantit&. nventor& change is a critical element i" uantities are to

coincide 7ith accrual ad9usted "inancial measures.

Completeness is another matter entirel&. A "armer could 7ear himsel" out ,eeping

trac, o" ever& t&pe o" in"ormation that might remotel& 8e use"ul "or management anal&sis

purposes. The appropriate criteria "or ho7 much and 7hat management in"ormation to

record are:

1. Does the 8ene"it o" recording and using the in"ormation su""icientl& e#ceed the

cost to ma,e it 7orth7hileG

5. " the in"ormation is collated$ 7ill it 8e used to in"luence "arm decision ma,ingG

As &ou tr& to appl& these criteria$ it ma& 8e help"ul to thin, a8out 7hat

in"ormation is li,el& to change ho7 &ou operate the "arm. n"ormation that 7ill change

ho7 &ou operate and lead to improved &ields 7ould seem to produce a net 8ene"it.

%n"ortunatel&$ 7e generall& donHt have the lu#ur& o" ,no7ing that the in"ormation 7ill

pa& o"". )ut$ it is a good idea to have a plan in mind a8out ho7 the management

in"ormation 7ill 8e used 8e"ore investing large amounts o" time and mone& collecting

that in"ormation. (anagement records are onl& use"ul 7hen the& are used.

+.0 C!')$"(i!'

Farmers have to continuall& ma,e management decisions$ as 7e have so "ar

identi"ied. These management decisions determine the outcome o" a "arm operation in

relation to investment underta,en$ "inancing o" the operation$ protection$ or custodial and

consumption 8ehaviour o" the "arm household. Thus$ to ma,e good decisions$ "armers

must have relevant in"ormation

.0 S"**a&

n this unit &ou have learnt that:

Leeping records are essential to the e""icient management o" a "arm 8usiness

Accurate records and resulting anal&ses help "armers ma,e "inancial and

production decisions

Traditional hand record; ,eeping s&stems continue to 7or, 7ell "or man&

"armers

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U'it +: A'a$


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1.0 I't&!")ti!'

nce a "arm record ,eeping s&stem has 8een esta8lished anal&Bing the records

can 8egin. Decision ma,ing can 8e greatl& enhanced 8& anal&Bing 8oth production and"inancial records and their impact on pro"ita8ilit&. n this unit &ou 7ill learn a8out a

num8er o" "inancial anal&sis tools that can 8e used 7hen accurate and complete "arm

records are availa8le.

2.0 O,-%)ti%(

t is e#pected that$ at the end o" this unit$ &ou should 8e a8le to :

Discuss the various methods o" anal&Bing "arm records.

3.0 Th% ,! !5 th% "'it

3.1 A'a$


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The 8alance sheet gives the "arm manager a snapshotK o" the net7orth on a

speci"ic date. The net7orth is the value o" all assets on the "arm less the amount o"

mone& o7ed against those assets.

-ome o" the ratios and relationships on a t&pical net7orth statement are e#amined

8elo7.

1. Current Ratio @/iuidit& t is a measure o" a 8usinessH a8ilit& to meet current de8t

o8ligations as the& come due 7ithout disrupting normal operations.

The ratio is calculated 8& dividing the current assets 8& the current lia8ilities.

Current ratio O Current Assets

Current /ia8ilities

As a general rule$ t7o aira o" current assets to one naira o" current lia8ilities represents

a strong ratio. A current ratio o" 1.:1 is good. 1 to 1 is 7ea, and P1 to 1 o"ten results in

cash"lo7 pro8lems.

5. De8t to Asset Ratio @-olvenc&

t is a measure o" the 8usinessH a8ilit& to meet its total de8t o8ligations$ i" all the assets

7ere to 8e sold. t provides an indication o" the 8usiness a8ilit& to continue in the event

o" severe "inancial adversit& caused 8& perils such as drought$ e#cess moisture or a

decline in commodit& prices. t also sho7s the percentage o" the assets that are "inanced

8& outside creditors. The ratio is calculated 8& dividing the total lia8ilities 8& the total

assets and is e#pressed as a percentage.

De8t to Asset ratio O Total lia8ilities # 100

Total Assets 1

As a general rule$ a "arm 8usiness having under 5 o" its assets "inanced is in a "airl&

strong position 7hile 8et7een 5 to +0 is moderate$ and 8et7een +0 and 60 is in

an increasingl& 7ea,er position. The higher the de8t ratio$ e#pressed as a percentage the

greater the "inancial ris, as a result o" the higher 8orro7ing costs.

3. Earned "inancial progress @pro"ita8ilit&

Earned "inancial progress re"ers to the increase in the "arm 8usiness net7orth

"rom the 8eginning o" the period to the end o" the period as a result o" the income earned

8& the 8usiness. The ,e& 7ord is earnedH 7hich e#cludes changes in net7orth as a result

o" an o7nerHs contri8utions to the 8usiness$ the gain on the sale o" the assets or the re;

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evaluation o" the assets including land$ 8uildings and 8reeding stoc,. t is important to

trac, the increases to net7orth that relate directl& to income earned 8& the 8usiness as

opposed to other ad9ustments or transactions.

3.1.2 I')!*% Stat%*%'t

ther names used "or this important accounting statement include: a pro"it and

loss statement$ an operating statement and an income and e#pense statement. The

income statement lists the income and e#penses o" a 8usiness over a period o" time called

the accounting period.

ear ? to &ear pro"its are calculated on the income statement also ,no7n as the

pro"it=loss statement. The income statement is used to calculate net cash income$

ad9usted 8& changes in inventories and capital items.

The et "arm income re"ers to the Q8ottom lineH pro"it that is earned @or pro9ected

to earn 8& the 8usiness during the accounting period. The et Farm ncome provides the

ans7er to the uestion o" ho7 much pro"it the "arm has made or is pro9ected to ma,e$ in

the 8usiness plan.

Anal&Bing the et Farm ncome as a return on the "arm assets and euit&

@net7orth can also 8e in"ormative. -ince the et Farm ncome represents the return the

"arm earns on investment.

The measures o" pro"ita8ilit& are as discussed 8elo7.

1. Returns on Assets @RA

t is a measure o" pro"ita8ilit& measuring the rate o" return that the "arm 8usiness

earns on its average asset 8ase over the period. The higher the return$ the more pro"ita8le

the "arm 8usiness.

RA O et Farm ncome nterest e#pense ? la8our # 100

Total Farm Assets @Average 1

5. Return on Euit& @RE

t is a measure o" the return to the net7orth @euit& in the 8usiness. The "arm

euit& is the capital that could 8e invested else7here @i" &ou 7ere not "arming and so this

anal&sis provides an interesting perspective to see 9ust ho7 good a return a "armer is

receiving on his investment in "arming as compared to other alternatives. t is calculated

8& dividing the et Farm ncome less the unpaid la8our=management costs$ 8& the

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average value o" the "arm euit& @net7orth "or the period and is e#pressed as a

percentage.

RE O et Farm ncome ? /a8our # 100

Farm Euit& @average 1

A return on euit& e#ceeding the return on assets indicated an economical use o"

8orro7ed "unds. n other 7ords$ it paid to 8orro7 mone& 8ecause the return on this

8orro7ed capital 7as greater than the cost o" 8orro7ing.

3. E#pense=Revenue Ratio

-ho7s the percentage o" the "arm income that is reuired to cover the operating e#penses$

e#cluding the principal and interest pa&ments. The ratio is calculated 8& dividing the

operating e#penses 8& the value o" the "arm production and is e#pressed as a percentage.

E#penses=Revenue Ratio O perating e#penses # 100

2alue o" "arm production 1

The value o" "arm production is the total value o" the "arm sales less the cost o" purchased

"eeds$ grain and mar,et livestoc,.

3.1.3 Ca(h 5$!#

The cash"lo7 pro9ection stimulated the anticipated "inancial activit& that 7ill "lo7

through the "arm 8an, account during the accounting period.

The pro9ected monthl& cash"lo7 statement is used to loo, ahead to the ne#t &ear

o" operations. )& pro9ecting a cash"lo7 "or the ne#t &ear$ potential cash short"alls can 8e

noted and appropriate changes in the "arm operation can 8e anal&Bed.

3.2 Fi'a')ia$ (tat%*%'t a' $i(t !5 R%="i&% R%)!&(

Ta8le + illustrates the ,inds o" records that go into the ma,ing o" "inancial

statements and production summaries. The le"t column contains the "inancial or

production statement desired 8& the "arm manager. The right column contains the

records reuired to complete the statement.

Records can 8e used "or more than one statement "or e#ample$ De8t pa&mentsK

are used in the income statement$ cash"lo7 statement and in income ta#es$ li,e7ise$

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There are some records reuired "or some "inancial statements. For instance

in preparing the 8alance sheet$ records needed include: "arm Assets cost and

value$ "arm and personal assets$ changes in livestoc,$ crop and other product

inventories$ loan 8alances.

6.0 T"t!& Ma&/% A((i'*%'t

1. %se &our ,no7ledge o" a 8alance sheet and ratio anal&sis to complete the 8alance

sheet 8elo7. 4iven that the net capital ratio O +$ the current ratio O 5 and the

intermediate ratio O 3

Assets /ia8ilities

Total Current Assets +00$000 Total current /ia8ilities SSSSSSSSSSSS

Total ntermediate Assets SSSSS Total ntermediate /ia8ilities SSSSSSSSSSSS

Total Fi#ed Assets SSSSSSSS Total /ong;term /ia8ilities SSSSSSSSSSSS

Total /ia8ilities et7orth SSSSSSSSSSS

Total Assets SSSSSSSSS Total /ia8ilities and et7orth +$000.000

5. " 7hat use is the Returns on Euit& ratio in "arm "inancial anal&sis.G

;.0 R%5%&%')%( a' !th%& (!"&)%(

4erlo""$ D.C and R.! olland @5006 Esta8lishing and using a "arm "inancial Record

,eeping s&stem. The %niversit& o" Tennesse Agricultural E#tension -ervice %T ') 1+0

(oore$ L.J @5005: !hat are the most necessar& "arm records and ho7 do i interprete

and use themK Freuentl& As,ed "arm (anagement and (ar,eting Muestions @FA o

>. The pursue %niversit& Cooperative E#tension -ervice 'u8lications ? 'urdue

E#tension ? Lno7ledge to 4o

!ie8e$ '. @500+: Anal&Bing a Farm )usinessK: A guide to help producers prepare$

anal&Be and interprete "arm 8usiness plans in order to ma,e in"ormed management

decisions. 'u8lished 8& (anito8a Agriculture and Food -ection$ (anito8a %niversit&.

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U'it : C!*4"t%&i


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1.0 I't&!")ti!'

A concern o" man& "inancial consultants and lenders is that man& "armers lac,

adeuate records to monitor and anal&Be the "inancial health o" their "arm 8usiness. /ac,

o" "inancial data ma,es it di""icult to determine proper de8t loads$ or to develop plans "or8usinesses 7ith ma9or "inancial pro8lems.

A variet& o" methods could 8e used in collecting the necessar& "arm record

in"ormation: hand ,ept records$ simple or comple# computer s&stems. As "arm siBe and

or de8t increases$ man& "armers and lenders loo, "or computer program that allo7 "ast

data entr&$ have internal chec,s "or accurac& and allo7 summariBing the data in a variet&

o" 7a&s. (ost 8egin their search 8& as,ing: s there a simple computer program that 7ill

,eep m& records li,e the "arm account 8oo,sKG n this unit there"ore$ attempts 7ill 8e

made to e#plain the various commercial so"t7are program that can do an e#cellent record

,eeping 9o8 on the "arm.

2.0 O,-%)ti%(

t is e#pected that at the end o" this unit &ou should 8e a8le to:

/ist and e#plain the uses o" the various commercial so"t7are programs

availa8le to ,eep computeriBed "arm records.

-tate the advantages and the disadvantages o" each so"t7are s&stem=program.

3.0 Th% ,! !5 th% "'it

3.1 C!*4"t%&i


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3. Farm Cash= accrual accounting s&stems ? 'C(ars$ Transactions 'lus @TA

8& F)- -&stems$ Red7ing

+. Add;ons "or anal&sis: -preadsheets$ F'ACL$ AFRA 8& F)-.

3.1.1 Aa'ta%( a' Di(aa'ta%( !5 %a)h ((t%*

Si*4$% )a(h ((t%*(

n a simple cash s&stem$ users are a8le to record all cash transactions o" 8oth the

"arm and "amil&. Muic,en is the onl& program listed due to its 7idespread use across the

%nited -tates o" America. ts popularit& is due to the ease o" data entr& and to its lo7

price. This single ? entr& s&stem is essentiall& an electronic chec,8oo,. o7ever$ it

allo7s users to trac, loans$ stoc, port"olios and other "inancial= assts. The a8ilit& to

easil& enter data$ 7rite cheues "rom the computer$ reconcile the cheue 8oo, 7ith the

8an, statement and uic,l& create reports "or "inancial and ta# purposes e#plains its

8road acceptance$ there is a pa&roll module that can 8e added 7hich is adeuate "or the

"irm 7ith onl& a "e7 emplo&ees.

Critics o" Muic,en point to producers 7ith limited ,no7ledge o" accounting

concepts 7ho "ail to propert& classi"& income and e#pense entries that lead to "la7ed

reports$ Muic,en does not have a chart o" accounts 7ith income and e#pense categories

speci"ic to agriculture users can correct this pro8lem 8& contacting e#tension agents "or

training and o8tained a sample chart o" accounts to use 7ith their "arm records. thers

"ault Muic,en "or the lac, o" "ields to trac, ph&sical uantities.

'roperl& used$ Muic,en can provide use"ul$ accurate summaries o" all cash

transactions$ including sales and purchases o" capital assets such as machiner& and

8reeding livestoc,. nce the depreciation schedule is created$ not 8& Muic,en$ producers

have all data needed "or ta# reporting.

G%'%&a$ )a(h8a))&"a$ a))!"'ti' ((t%*(.

Three programs: Muic,8oo,s$ DacEas&$ and 'eachtree are listed under general

cash accrual accounting s&stems. Muic,)oo,s is representative o" this group.

Muic,)oo,s has an e#cellent chart o" accounts speci"ic to agriculture. Reconciliation o"

computer accounts 7ith 8an, statements is uite eas&. Dou8le ?entr& "eatures allo7

either cash or accrual reports$ "irms 7ith emplo&ees en9o& the ease o" generating pa&roll

chec,s and all related emplo&ee reporting. The user 8egins 8& entering a 8eginning cost

3>


40/131

8asis 8alance sheet. As dail& receipts and e#penditures are entered$ the 8alance sheet is

updated. )ut unless the user also records trans"ers o" "eed "rom inventor& to livestoc,$

monthl& depreciation etc the intra;&ear 8alance sheets are not correct. For "arm users a

8alance sheet once a &ear is t&picall& all that is use"ul and necessar&. This is

accomplished 8& ta,ing a &ear end inventor& and entering the ad9ustments$ including

depreciation to ma,e the &ear;end 8alance sheet. The 8eginning and ending 8alance

sheets$ plus cash receipts and e#penditures give the user an accrual income statement$

thus providing &our 8asic "inancial statements.

%se o" a program such as Muic,)oo,s does reuire some ,no7ledge o"

accounting. Again$ these are general accounting programs and ma& not allo7 "or

recording ph&sical uantities. There are some training materials and !e8 sites that can

assist producers 7ho 7ish to use such programs. /i,e Muic,en$ it allo7s &ou to separate

the data into enterprise groups$ such as dair& versus crops. n order to produce accurate

"inancial statements$ onl& in"ormation relating to the "arm 8usiness should 8e recorded.

" a computer is used to trac, "amil& income and e#pense$ &ou should have separate

chec,8oo,s and use Muic,en to record all non "arm transactions$ 7hile more e#pensive

than Muic,en$ the price tag is still attractive to man& small 8usinessmen$ including

"armers.

Fa&* Ca(h a))&"a$ a))!"'ti' ((t%*(.

The "arm cash accrual accounting s&stems reuire some ,no7ledge o" accounting.

(ost "ocus onl& on the "arm 8usiness$ 8ut some allo7 "amil& or other 8usiness data to 8e

,ept in the same s&stem. Tr&ing to totall& integrate man& programs$ especiall& the

integration o" "eed produced$ purchased$ "ed and sold 7ith all cash transactions can 8e a

daunting tas,. )& starting 7ith the 8asic program and adding others as needed$ ma9or

pro8lems should 8e avoided.

3.1.2 G%tti' ,%!' >"(t /%%4i' &%)!&(

An& o" the a8ove t&pes o" record s&stems can get annual summaries o" cash

receipts and e#penses. This includes sale and purchase o" capital assets$ principal and

interest pa&ments and addition=8orro7ings. To o8tain "inancial statement and anal&Be

"inancial position reuires using the data in a separate program.

+0


41/131

This ma& 8e an additional module "rom the so"t7are compan&$ or it ma& 8e a separate

program. n either case$ the chart o" accounts used must match up 7ith the grouping o"

income and e#pense categories in the other program.

-pread sheets are availa8le that can 8e used 7ith &ear end inventor& data to

develop 8alance sheets$ income statements and anal&sis. Chec, the (ontana state

%niversit& 7e8 site "or ones currentl& availa8le$ little cash outla& is reuired$ 8ut &ou 7ill

need to spend time to understand ho7 to collect and enter the data to do it right. F'AC

provides another 7a& to develop and anal&Be "inancial statements. t is also possi8le to

use a program that is integrated 7ith the 8asic so"t7are li,e TA or Red 7ing.

3.1.3 Th% %(t P&!&a* ?S(t%*@ 5!& Fa&* "(i'%((

!hich program @s&stem is 8est "or &our "arm 8usinessG o one can predict

7hich program is 8est. The "ollo7ing ma& help in the decision.

1. E#amine "arm speci"ic programs

" &ou:

eed complete$ 7ell documented "inancial statement

ave$ or are planning on a large amount o" de8t

ave man& emplo&ees

ave someone 7ho has some ,no7ledge o" accounting

Forsee a need "or more e#tensive records in the "uture.

5. E#amine cash ? 8ased or generic programs$ e.g Muic,en i" &ou:

Leep records primaril& "or ta# purposes.

're"er to use spreadsheets$ F'ACL or an accountant to generate and anal&Be

"inancial statements.

ave "e7 emplo&ees

Can get needed production data else7here

ave little ,no7ledge o" computers.

+.0 C!')$"(i!'

n this unit 7e have learnt that computeriBed "arm record ,eeping could 8e done

7ith the aid o" an& o" the "ollo7ing groups o" so"t7are: -imple cash s&stems @Muic,en

4eneral cash accrual accounting s&stems @e.g Muic,)oo,s$ DacEas& 'eachtree$ Farm

+1


42/131


43/131

;.0 R%5%&%')%( a' !th%& (!"&)%(

Duvic,$ R. D @500*: ComputeriBed Farm Record Leeping. hio -tate %niversit&

)ulletin 0;01 Department o" Agriculture$ Environmental and Developmental

Economics$ the hio -tate %niversit&$ Colum8us.

+3


44/131

M!"$% T#!: !!//%%4i' a' A))!"'ti'

%nit 1 (eaning and scope o" 8oo,,eeping

5 )oo, ,eeping

3 (eaning and scope o" "arm accounting + -&stem o" Farm accounting

ComputeriBed Farm Accounting

%nit 1: (eaning and scope o" 8oo,,eeping

1.0 ntroduction

5.0 89ectives

3.0 The )od& o" the unit

3.1 (eaning and scope o" 8oo, ,eeping

+.0 Conclusion

.0 -ummar&

6.0 Tutor (ar,ed Assignment


++


45/131

1.0 I't&!")ti!'

n this unit &ou 7ill learn a8out meaning and scope o" 8oo, ,eeping. ou 7ill 8e

acuainted 7ith the distinction 8et7een 8oo, ,eeping and accounting as 7ell as the

various 8oo,s used "or 8oo, ,eeping.

2.0 O,-%)ti%(

t is e#pected that$ at the end o" this unit$ &ou should 8e a8le to:

E#plain the concept o" 8oo, ,eeping

Distinguish 8et7een 8oo, ,eeping and accounting.

Discuss the various 8oo,s used "or 8oo, ,eeping.

3.0 Th% ,! !5 th% "'it

3.1 M%a'i' a' ()!4% !5 !!/ /%%4i'

)oo, ? ,eeping ma& 8e de"ined as the science o" recording transactions involving

mone& or mone&Hs 7orth in a regular and s&stematic manner in such a 7a& that the 8oo,s

o" accounting 7ill sho7 a true and "air state o" the "inancial 7orth o" a 8usiness readil& at

an& point in time.

)oo,;,eeping is the recording o" transactions i.e the record ma,ing phase o"

accounting. The recording o" transactions tend to 8e mechanical and repetitive$ it is onl&

a part o" the "ield o" accounting and pro8a8l& the simplest part.

n the other hand$ accounting includes the design o" accounting s&stems$

preparation o" "inancial statements$ audits$ cost studies$ development o" "orecast$ income

ta# 7or,$ computer applications to accounting in"ormation as an aid to ma,ing 8usiness

decisions.

The 8oo,s that are used "or 8oo, ,eeping "all naturall& into the "ollo7ing

divisions namel&:

1. 'rincipal 8oo,s: under this su8;head 7e have the ledger and the cash 8oo,.These are the main 8oo,s 7hich are used "or practicing the s&stem o"

accounts.

5. -u8sidiar& 8oo,s: This is other7ise ,no7n as 8oo,s o" original entr&$ "irst

entr& or prime entr&. (an& details are recorded in these 8oo,s 8e"ore the

amounts concerned are trans"erred to the ledger accounts.

+


46/131

3. -tatistical or memorandum 8oo,s: n these 8oo,s are "ound various details

connected 7ith the 8usiness operations that cannot convenientl& 8e recorded

in other 8oo,s. E#amples o" these are the cost 8oo,s and stoc, 8oo,s o" a

manu"acturing "irm$ the registers o" shareholders in limited lia8ilit&

companies$ the polic& registers o" an insurance compan& etc.

+.0 C!')$"(i!'

!e have e#amined the meaning and scope o" 8oo, ,eeping the 8oo,s that are

used "or 8oo, ,eeping 7ere also discussed.

.0 S"**a&

n this unit$ 7e have learnt that:

)oo, ,eeping is the science o" recording transactions involving mone& ormone&Hs 7orth in a regular and s&stematic manner in such a 7a& that the 8oo,s

o" accounts 7ill sho7 a true and "air state o" the "inancial 7orth o" a 8usiness

readil& at an& point in time.

The various 8oo,s that are used "or 8oo, ,eeping can 8e classi"ied into: 'rincipal

8oo,s$ su8sidiar& 8oo,s$ statistical or memorandum 8oo,s.

6.0 T"t!& Ma&/% A((i'*%'t

1. De"ine 8oo,;,eeping and Accounting5. Distinguish 8et7een 8oo, ,eeping and accounting.

3. E#plain the three ma9or divisions o" 8oo,s used in 8oo, ,eeping and accounting.

;.0 R%5%&%')%( a' !th%& (!"&)%(

lo"inlana /. and R.! de7ale @1>>>: Fundamentals o" Accounting 2olume 1$

-econd Edition$ -tecom 'u8lishers /td A,ure$ ndo -tate$ igeria pp 1;1


47/131

U'it 2: !!/ /%%4i'

1.0 ntroduction

5.0 89ective

3.0 The 8od& o" the unit3.1 )oo, ,eeper

3.5 )oo, ,eeping s&stems

+.0 Conclusion

.0 -ummar&



+*


48/131

1.0 I't&!")ti!'

n this last unit @unit one$ &ou have "ound out that$ 8oo, ,eeping is the record

ma,ing phase o" accounting. ou have also learnt that$ the various 8oo,s that are used

"or 8oo, ,eeping can 8e classi"ied into: principal 8oo,s$ su8sidiar& 8oo,s$ statistical ormemorandum 8oo,s. n this unit$ &ou 7ill learn a8out the 8oo, ,eeper as 7ell 8oo,

,eeping s&stems.

2.0 O,-%)ti%(

At the end o" this unit$ &ou 7ill 8e e#pected to 8e a8le to:

E#plain the various s&stems o" )oo, ,eeping.

3.0 Th% ! !5 th% "'it

3.1 !!/ /%%4%&

A 8oo, ,eeper @or 8oo, ,eeper$ also ,no7n as an accounting cler, or accounting

technician$ is a person 7ho records the da&;to;da& "inancial transactions o" an

organiBation. A 8oo, ,eeper is usuall& responsi8le "or 7riting the da&8oo,sK$ The

da&8oo,s consist o" purchase$ sales$ receipts and pa&ments. The 8oo,,eeper is

responsi8le "or ensuring all transactions are recorded in the correct da& 8oo,$ suppliers

ledger$ customer ledger and general ledger. The 8oo, ,eeper 8rings the 8oo,s to the trial

8alance stage. An accountant ma& prepare the income statement and 8alance sheet using

the trial 8alances and ledgers prepared 8& the 8oo,,eeper.

3.2 !!//%%4i' S(t%*(

T7o common 8oo,,eeping s&stems used 8& 8usinesses and other organiBations

are the single entr& 8oo, ,eeping s&stem and the dou8le;entr& 8oo,,eeping s&stem.

3.2.1 Si'$% %'t& ((t%*

The primar& 8oo, ,eeping record in single;entr& 8oo, ,eeping is the cash8oo,

7hich is similar to a chec,ing @cheuing account register 8ut allocates the income and

e#penses to various income and e#pense accounts -eparate account records are

maintained "or pett& cash$ accounts pa&a8le and receiva8le and other relevant

transactions such as inventor& and travel e#penses.

+


49/131

The main characteristic o" this s&stem is the ,eeping o" personal accounts onl&.

For e#ample$ a trader 7ho operates this s&stem 7ill certainl& have a cash8oo,$ 8ut he

ma& or ma& not 7rite the cash8oo, up correctl&$ since he alone operates the 8oo,s and

the 8usiness. e 7ill have access to his 8an, account and this is enough "or him to ,no7

the state o" the 8usiness. )esides the cash8oo,$ he 7ill also ,eep his customers accounts

to 7hom goods are sold on credit 9ust "or the record. For creditors he ma& not 8other

much to record their transactions$ since this is 8ased on personal dealings.

This is one o" the pro8lems o"ten encountered 7hen the dou8le entr& s&stem is not

in use. ther accompanied pro8lem o" the single entr& s&stem are non ,eeping o" the

"ollo7ing records:

i. Accurate E#penses Account

ii. Total sales and purchases o" 4oods

iii. Accurate "igures "or creditors

iv. Acuired Assets o" the 8usiness @8esides the de8tors

v. Accurate "igure "or capital Account at an& given time.

!hen these records are not in place$ it 7ill 8e ver& di""icult to have complete records

leading to trial 8alance.

To prepare the pro"it and /oss Account and a 8alance sheet "rom single entr&

8oo,;,eeping$ the "ollo7ing procedure are recommended:

i. )uild up a statement o" A""airs and capital Account: This reuires the value o"

assets and lia8ilities to 8e determined in "acts and "igures. This is done 8&

ta,ing the value o":

ii. Cash availa8le at the 8eginning and end o" a trading period including cash at

8an,.

iii. Availa8le assets 8oth at the 8eginning and close o" 8usiness e.g "urniture$

machiner&$ stoc, in trade and the value o" de8tors including prepaid and 8ills

receiva8le.

iv. Consider the value o" sundr& creditors$ this 7ill include personal advances to

the proprietor$ 8an, overdra"ts$ 8ills pa&a8le and outstanding e#penses o7ing.

+>


50/131

v. Construct a capital account "or the o7ner o" the 8usiness. n credit @Cr side

insert the opening 8alance o" the capital$ then add an& additional capital

contri8uted either in the "orm o" cash or o" other assets.

n the De8it side enter the closing 8alance o" capital at the end o" the period. The

di""erence 8et7een the t7o sides o" the capital account 7ill represent the pro"it or loss "or

the period.

ote: " the opening capital e#ceeds the closing capital$ such e#cess is considered

to 8e a loss and 7here the closing capital e#ceeds the opening capital$ it is regarded as

pro"it "or the period.

E#ample 1

The "ollo7ing is an e#ample o" a single entr& record$ 'repare a statement o" A""airs and

statement o" pro"it "or the &ear ended.

Ascertain 8oth the opening and closing capital.

Jan 1st Dec 31st

-toc, ; in ?trade

5$000


51/131

!here the opening stoc, and purchases are added together$ the result is the cost

o" goods availa8le "or sale. !hen closing stoc, is deducted$ the resulting "igure is

cost o" 4oods -old.

iv. Then "ind the 4ross pro"it

To "ind sales and purchases "igure:

-A/E- CTR/ ACC%T

Dr ? pening value o" de8tors

Cr ? Cash received "rom de8tors

Cr ? Closing value o" de8tors

The di""erence 8et7een the de8it and credit sides represents the value o" sales in the

period$

'%RCA-E- CTR/ ACC%T

Dr ? Cash paid to Creditors

Cr ? pening value o" creditors and ta,e do7n 8elo7 the lines.

The di""erenceK 8et7een the de8it and credit sides represents the value o" purchases in

the period.

The "ollo7ing transactions sho7s the preparation o" sales control Account and the

purchases control Account.

pening "igure o" de8tors "or the &ear$ Jan 1st500;1 +0$000

pening "igure o" creditors "or the &ear$ Jan 1st500;1 $000

Cash received "rom de8tors 7ithin the &ear 50$000

Cash paid to creditors 7ithin the &ear 1


52/131

Jan 1

Dec 31500;5

Jan 1

)alance 8="

-ale @di""erence

)alance 8=d

+0$000

5*0$000310$000

60$000

Dec 31

Cash

)alance c=d

50$000

60$000310$000

'urchases Control Account

500;1

500;1

Dec 31

500;5

Cash

)alance c=d

1$000

51+$000

ote:

%nder the capital "und$ cash introduced in Januar& 7as arrived at 8& su8stracting

the current lia8ilities "rom the total o" 8oth "i#ed and current assets. This di""erence

5


53/131

8et7een Assets and lia8ilities in the statement o" A""airs is the cash introduced @capital

on 1stJanuar&.

5. 'reparation o" -tatement o" 'ro"it

A"ter the opening statement o" A""airs has 8een opened and the capital ascertained

the ne#t step is to prepare the statement o" pro"it "or the &ear. )ut 8e"ore this is done$ the

closing capital 7ill have to 8e ascertained as 7ell.

Capital at the close o" 8usiness is ascertained thus:

DR CR

A--ET-:

(achiner&

Furniture-toc, in trade

De8tors

Cash

Electricit& 'repaid

nsurance

)an,

/A)/TE-

Creditors

Rent 7ing

)ills pa&a8le

Closing capital @di""erence

+0$000

0$000


54/131

5. ote the 7ithdra7als made 8& the o7ner o" the 8usiness$ and an& introduction

o" capital during the trading period. Also note the amount 8& 7hich "i#ed

assets have 8een depreciated. The same thing applies to )ad de8ts provision.

-TATE(ET F 'RFT AD /-- FR TE EAR EDED 31-TDECE()ER

Dec 31 -undr& /ia8ilities

Closing capital c=d

pening Capital

Jan 1

-ales @car

)ad de8ts @provisionet 'ro"it

150$000

1


55/131

1. 'rovide a permanent$ s&stematic and complete record o" "inancial

transactions.

5. 'rovide "inancial records "or the value o" assets and lia8ilities$ purchases and

sales$ income and e#penses.

3. 'rovide records "or ascertaining pro"it or loss made at an& given time.

+. -ho7 the "inancial 7or, o" an organiBation at an& point in time.

. Chec, the arithmetical accurac& o" monetar& transactions recorded in the

8oo,s o" accounts.

6. elp in detecting "raud and other irregularities that ma& arise "rom inadeuate

accounting records.

*. 'rovide "inancial records "or 8usiness comparative purposes 7ithin and

7ithout the activities o" the organiBation.


56/131

De8tors Creditor

@e.g )an,$ customers @e.g supplies$ goods=services

mpersonal Accounts

Real Account ominal Account

'ropert& Accounts

e.g 'lant N machiner&

stoc, and cash etc 4ains$ 'ro"its$ losses=E#penditure

Discount received 7ages$ rents

Dividend received

S",(iia& !!/(

-u8siding 8oo,s are the records o" transactions entered in separate 8oo,s$ mainl&

"or the purpose o" listing and classi"&ing the various transactions as the& occur and to

avoid the ris, o" errors and omissions o" direct entries in the ledger. -u8sidiar& 8oo,s are

also called 8oo,s o" original entr& or 8oo,s o" prime entr&K

The su8sidiar& 8oo,s reuired in 8usiness are:

ii. 'urchases 9ournal=purchase da& )oo,. This 8oo, contains the particulars o"

goods 8ought on credit. 'articular o" each purchase 7ith date and names o"

seller are entered in it and the amount is posted individuall& to the credit o"

the account o" the supplier in the ledger. The total amount o" purchases "or a

given period is posted to the De8it o" purchases Account.

iii. -ales Journal= sales Da& )oo,: n the 8oo,$ a dail& record is made o" all sales

o" goods on credit. 'articulars o" each sales 7ith date$ name o" consumer and

the good sold are entered in it. o7ever$ all transactions entered in this 8oo,

have to 8e posted to the credit o" the sales account at the end o" a given

period.

iv. 'urchases Returns )oo,

6


57/131

This contains particulars o" goods returned$ the date and the name o" the

seller

= supplier. All postings 8eing made in respect o" purchases returns are ta,en

to the De8it o" the account o" the seller= supplier to 7hom goods are returned

and the periodic total is posted to the credit o" the purchases Returns Account.

v. -ales Returns )oo,

This 8oo, records goods sold 8ut later returned "or one reason or the other

@i.e de"ective$ under;siBe$ 7rong suppl&$ irregular siBe or colour etc.

/i,e the purchases Returns$ it records the names$ date$ goods returned

and the reason "or its return. All posting 8eing made in respect o"

this returns are ta,en to the credit o" the account o" the customer

7ho returned the goods. The respective totals are posted to the De8it

o" sales Returns Account periodicall&.

vi. The Journal 'roper

The 9ournal or Journal proper is used "or the purpose o" recording

transactions$ 7hich 8ecause o" their nature cannot 8e entered in an& other

8oo, o" prime entr&. t is also used "or opening and closing entries$ trans"er

o" items or corrections o" errors etc.

E#ample 1

Enter the "ollo7ing transactions in dou8le entr& s&stem in the ledger accounts o"

/. ladime9i "or the month o" Januar& 1> # 'aid '. )alogun 8& cheue 10$000

10 The "ollo7ing people paid 8& cheue J. 'eter 1*0$000 and

'. John 1>0$000

11 ladime9i 8rought a "urther 100$000 into the 8usiness and deposited it

in the 8an,

15 )ought ""ice "urniture on credit "rom '. Tete +00$000.

13 )ought o""ice stationer& on credit "rom A Dar,o 50$000

1+ 'aid rent 8& cash 10$000

1 Returned part o" the o""ice "urniture to '. Tete 0$000

16 'aid '. Tete 8& cheue 10$000

1* -old some o" the o""ice "urniture "or cash *0$000

1< Too, cash "or private use 1$000

1> Too, goods 7or, 10$000 "or private use

50 )ought 8uilding on credit "rom A A8an,7a +00$000

51 Received rent 10$000 "rom part o" the 8uilding su8;let cheue

55 'aid rent 8& cheue 30$000

5 Repaid part o" D. TaleHs loan 8& cheue # # < 1> # <

Jan 1 )an, 300$000

1 Cash 500$000

11 )an, 100$000

/oan D. TaleHs Account

1> # < 1> # <

Jan 5 )an,


59/131

)an, Account

1> # < 1> # <

Jan 1 Capital 300$000 Jan 1 'urchase 10$000

1 /oan @D. Tale100$000 6 (otor e#penses 10$000

10 J. 'eter 1*0$000 > '. )alla

10$000

10 '. John 1>0$000 16 '. Tete 10$000

11 Capital 100$000 55 Rent 30$000

51 Rent Receive 10$000 5 /oan @D. Tale # * 1> # <

Jan 1 Capital 500$000 Jan (otor van 100$000

1* ""ice Furniture *0$000 1+ Rent 10$000

31 -ales 10$000 1< Dra7ings 1$000

'urchase Account

1> # < 1> # *

Jan 5 )an, 10$000

3 '. )alla 300$000

'. )alogunHs Account

1> # < 1> # <

Jan * Returns out7ards 50$000 Jan 3 'urchases 300$000

> )an, 10$000

-ales Account

1> # < 1> # <

Jan + J. 'eter 500$000

+ '. John 50$000

>


60/131

56 )an, +00$000

31 Cash 10$000

J. 'eterHs Account

1> # < 1> # <

Jan + -ales 50$000 Jan 10 )an, 1*0$000

'. JohnHs Account

1> # < 1> # <

Jan + -ales 50$000 Jan < Return in7ards 5$000

10 )an, 1 # < 1> # <

Jan Cash 100$000

(otor E#penses Account

1> # < 1> # <

Jan 6 )an, 100$000

Returns ut7ard Account

1> # < 1> # <

Jan * '. )alogun 50$000

Returns n7ard Account

1> # < 1> # <

Jan < '. John 5$000

60


61/131

""ice Furniture Account

1> # < 1> # <

Jan 15 '. Tete +00$000 Jan 1 '. Tete 0$000

1* Cash *0$000

'. TeteHs Account

1> # < 1> # <

Jan 1 ""ice Furniture 0$000 Jan 15 ""ice "urniture +00$000

16 )an, 10$000

""ice -tationer& Account

1> # < 1> # <

Jan 13 A. Dar,o 50$000

A. Dar,oHs Account

1> # < 1> # <

Jan 13 ""ice stationer& 50$000

Rent E#penses Account

1> # < 1> # <

Jan 1+ Cash 10$000

55 )an, 30$000

Dra7ings Account

1> # < 1> # <

Jan 1< Cash 1$000

1> 4oods 7ithdra7n 10$000

)uilding Account

1> # < 1> # <

Jan 50 A. A8an,7a +00$000

61


62/131

4oods !ithdra7n Account

1> # < 1> # <

Jan 1> Dra7ings 10$000

Rent Received Account

1> # < 1> # <

Jan 51 )an, 10$000


1> # < 1> # <

(a& 55 )an, 30$000

a$a')i' !55 !5 A))!"'t

This means "inding the 8alance on each account that ma,e the de8it side eual to

the credit side. The 8alance is the accounting term indicating the di""erence 8et7een the

t7o sides o" an account. " the total o" the de8it entries e#ceeds the total o" the credit

entries$ the account is said to have a de8it 8alance$ i" the total o" the credit entries e#ceeds

the total o" the de8it entries$ the account is said to have a credit 8alance. " the total o" the

de8it entries eual the total o" the credit entries$ the account is said to have a nil 8alance

and is thus sel" closing.

E#ample ii

Record the "ollo7ing transactions in the ledger account o" D. Lollo "or the month

o" (arch 1> * and 8alance o"" accounts at the end o" the month

1> *

(ar 1 -tarted 8usiness 7ith:

Cash in hand 100$000

Cash at 8an, 1$+00$000

65


63/131

/oan "rom A.9o 8& cash 300$000

/oan "rom J.A9a&i 8& plant and (achiner& 7orth 500$000

(ar 5 )rought goods "rom J .'aul 50$000

-old goods Joseph and -ons 500$000

* -old goods "or cash 100$000

11Dra7 cheue "or sel" 0$000

15 )rought goods "rom A. /a,olu 300$000

1< 'aid cash to )an, *0$000

50 Cash 'urchases +0$000

51 'aid J. 'aul 8& cheue 500$000

5+ -old goods 8& cheue 600$000

56 !ithdra7 "rom current acct to saving acct 50$000

5< traveling e#penses paid 8& cheue 100$000

5> Traveling e#pense 7ing 50$000

30 utstanding rent e#penses 10$000

31 'aid advertising 8& cheue 50$000

31 'aid 8& cheue the 8alance in A 9oHs account ;;;;;;;;

31 )an,ed all the mone& in cash till e#cept 10$000

-olution

D. LolloHs ledger accounts "or the month o" (arch 1> # *

Capital Account

1> # * 1> # *

(ar 31 )al c=d 1$00$000 (ar 1 Cash 100$000

1 )an, 1$+00.00

1$00$000 1$00.00

April 1 )al 8=d 1$00$000

/oan Account @A. 9o

1> # * 1> # *

(ar 31 )an, 300$000 (ar 1 Cash 300$000

63


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/oan Account @J. A9a&i

1> # * 1> # *

(ar 31 )an, 500$000 (ar 1 'lant N (achiner& 500$000

)an, Account

1> # * 1> # *

(ar 1 Capital 1$+00$000 (ar 11 Dra7ings 0$000

1< Cash *0$000 51 J. 'aul 500$000

5+ -ales 600$000 56 Deposit Account 50$000

31 Cash 3 # * 1> # *

(ar 1 Capital 100$000 (ar 1< )an, *0$000

1 /oan @A. 9o 300$000 50 'urchases +0$000

* -ales 100$000 31 )an, 3


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'urchase Account

1> # * 1> # *

(ar 5 J. 'al 50$000 (ar 31 )al c=d >0$000

1 A./a,olu 300$000

50 Cash +0$000

>0$000 >0$000

April 1 )al 8=d >0$000

J. 'aulHs Account

1> # * 1> # *

(ar 51 )an, 500$000 (ar 5 'urchases 50$000

31 )al c=d 0$000

50$000 50$000

Joseph N -ons Account

1> # * 1> # *

(ar -ales 500$000

-ales Account

1> # * 1> # *

(ar 31 )al c=d >00$000 (ar Joseph N -ons 500$000

* Cash 100$000

5+ )an, 600$000

>00$000 >00$000

April 1 1 )al 8=d >00$000

Dra7ings Account

1> # * 1> # *

(ar 11 )an, 0$000

6


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A. /a,oluHs Account

1> # * 1> # *

(ar 1 'urchases 300$000

Deposit Account

1> # * 1> # *

(ar 56 )an, 50$000

Travelling E#penses utstanding Account

1> # * 1> # *

(ar 5< )an, 100$000 (ar 31 )al c=d 150$000

5> Travelling E#p. ut 50$00150$000 150$000

April 1 )al 8=d 150$000

Travelling E#penses outstanding Account

1> # * 1> # *

(ar 5> Travelling E#p 50$000

utstanding Rent E#penses Account

1> # * 1> # *

(ar 30 Rent E#penses 10$000


1> # * 1> # *

(ar 30 utstanding rent e#penses 10$000

Advertising E#penses Account

1> # * 1> # *

(ar 31 )an, 50$000

66


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68/131

The 8oo,s that are used "or 8oo,,eeping "all naturall& into the "ollo7ing

divisions principal 8oo,s$ su8sidiar& 8oo,s and memorandum 8oo,s.

The ma9or methods o" 8oo,,eeping are single entr& and dou8le entr&. o7ever$

8oo,,eeping can 8e done on;line or computeriBed.

The golden rules "or dou8le entr& s&stem are:

i. Ever& de8it entr& must have a corresponding credit entr& and ever& credit

entr& must have a corresponding de8it entr&.

ii. De8it the account that receives and credit the account that gives.

6.0 T"t!& Ma&/% A((i'*%'t

1. !ho is a 8oo,,eeperG

5. -tate and e#plain the ma9or methods o" 8oo,,eeping

3. -tate and e#plain the golden rules o" 8oo,,eeping

+. Enter the "ollo7ing transactions in dou8le entr& "orm in the 8oo,s o" Jo,o9e N

-ons and 8alance o"" the accounts at the end o" mouth.

1> # >

Dec 1 -tarted 8usiness 8& cheues >00$000 and 100$000 8& cash

5 )ought goods on credit "rom Tade N sons +00$000

3 'aid "or carriage on purchases 8& Cash 1$000

-old goods 8& cheue *00$00

* )ought motor vehicle on credit "rom loto /td *00$000

> -old goods in credit to )olu7ati"e N Daughters 600$000

11 Received cheue "rom )olu7ati"e 50$000

13 Returned goods to Tai7o N -ons 5$000

1 )ought goods on credit "rom 'elu N -ons +00$000

1* 'aid /oto /td 00$000 8& cheue1> 'aid carriage on sales 8& cash 1$000

56 'aid salaries and 7ages 8& cheue *$000

6


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5* 'aid the 8alance on Tade N sons account 8& cheue

5< )an,ed cash in the cash till 7ith the e#ception o" $000

31 7ithdra7 *0$000 "rom current account to deposit account

;.0 R%5%&%')%( a' !th%& (!"&)%(

lo"inlana$ /. and R.! de7ale @1>>> Fundamentals o" Accounting volume 1$

second Edition$ -tecom 'u8lishers$ A,ure$ ndo -tate$ igeria. 'p 16;30.

g8en$ R. @500+: Financial Accounting (ade -imple. 2olume 1 First edition.

E/ ? TDA 2entures /td$ /agos$ /agos -tate$ igeria '' 551;556.

!illiams$ J.R -.F a,a (.- )ettner$ J.2. Carcello @500


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U'it +: S(t%* !5 Fa&* A))!"'ti'

1.0 ntroduction

5.0 89ectives

3.0 The )od& o" the unit3.1 -&stems o" "arm Accounting

+.0 Conclusion

.0 -ummar&



*0


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1.0 I't&!")ti!'

(a,ing o8servations on the 8usiness and deriving in"ormation is one o" the most

important roles o" "arm management. Farm Accounting provides in"ormation to control

mone& "lo7 in the 8usiness. t provides in"ormation on "inancial 7orthnessK$per"ormance and monetar& chec,ing. n this unit$ &ou 7ill learn a8out the s&stems o"

"arm accounting.

2.0 O,-%)ti%(

At the end o" this unit$ &ou 7ill 8e e#pected to 8e a8le to e#plain the various

s&stems o" "arm accounting.

3.0 Th% ,! !5 th% "'it

3.1 S(t%* !5 5a&* A))!"'ti'

Accounts are "inancial records o" 7hat the "armer spends and receives.

'otentiall&$ a complete s&stem o" "arm accounting should give the "armer much

in"ormation. e.g.

i. The current cash position and estimates o" the "uture cash positions.

ii. The past pro"ita8ilit& o" di""erent crops.

iii. The amounts o7ed to the "armer 8& de8tors$ and 8& him to creditors.

iv. The value o" the 8usiness assets @plant$ stoc,$ land and 8uilding etc and.

v. The pro"ita8ilit& o" the 7hole "arm and estimates o" li,el& "uture pro"its.

Four variants o" the accounting s&stem are discussed in this unit and these are:

3.1.1 Fa&* I')!*% Stat%*%'t !& Ca(h A'a$(i( A))!"'t

The Farm ncome Account is a statement o" all cash transactions that too, place

7ith regard to the "arm "or the &ear that has 9ust ended. n the "arm Account 8oo,$ -ales

and receipts are recorded on the le"t hand side$ 7hile purchases and e#penses are

recorded on the right hand side. %nder each o" the t7o sides o" the Account$ there are

three columns: Date$ Details and Total.

*1


72/131

Ta8le : Farm ncome -tatement "or the ear ended Dec 31$ 500*

-ales and Receipts 'urchase and E#penses

Date Details Total

received

Date Details Total

paid

Jan 1 pening 8alance

8eing cash in 8an, 1$000$000 mplements 100$000

!ages 00$000Feeds 1$500$000

-eeds


73/131


74/131

Crops +00$00

!or,ing Capital ntermediate

-uppliers 50$000 Account 'a&a8le 600$000Tools 0$000 !ithin three &ears

Fi#ed Capital /ong Term

/and >00$000 Account 'a&a8le in 00$000)uilding 300$000 50 &ears

Fencing 500$000 Total lia8ilit& 1$00$000

et !orth 1$500$000Total Assets 5$*00$000 Total /ia8ilit&

et7orth 5$*000$000

3.1.+ Fa&* A((%t( Va$"ati!'

2aluation entails o8taining a realistic measure o" the current value o" the assets o"

the "arm 8usiness. The "irst thing to do in assets valuation is the listing o" all the

resources availa8le in ph&sical terms then$ place value on the assets. The various

methods o" valuation include valuation at cost$ mar,et price$ net selling price$

reproductive value etc.

1. 2aluation at cost:; This entails entering in the inventor&$ the actual amount

invested on the asset 7hen it 7as originall& acuired. A ma9or disadvantage o" this

method is that a"ter the 8uiness has 8een in operation "or sometimes$ the original cost is

no more o" much value since the conditions might have changed.

5. 2aluation at (ar,et 'rice; The mar,et price o" an assets at the time under

consideration can 8e ta,en as its value e.g land

3. 2aluation at et -elling price some costs such as cost o" advertisement and

transportation might 8e incurred 7hen selling an asset. !hatever price can 8e o8tained

in the mar,et "or the assets @i.e mar,et price @'m less the cost o" selling @Cs is the net

selling price @'ns$ otationall&$

'ns O 'm ? Cs

+. 2aluation 8& Reproductive 2alue

*+


75/131


76/131

U'it : C!*4"t%&i


77/131

1.0 I't&!")ti!'

This is the computer age and the 7orld is 8ecoming a glo8al village. n this unit$

7e shall e#amine complete "arm Accounting using a so"t7are ,no7n as Farm "unds.

2.0 O,-%)ti%(t is e#pected that at the end o" this unit$ &our should 8e a8le to.

U E#plain the "eatures o" the "arm "unds.

3.0 Th% ! !5 th% "'it

3.1 Fa&* F"'(

Farm Funds is the onl& "arm accounting so"t7are that "ull& integrates 7ith "ield

records @Farm Trac$ herd management records @Farm -toc,$ and mapping @Farm site.

Do &ou ,no7 &our cost per acreG !hat is &our cost per ,ilogramme o" livestoc,G Farm

"unds o""ers eas& enterprising per "ield$ livestoc, groups$ machine$ or structure 7hile still

maintaining the records &ou need "or ta# purposes. Eliminate the stress 8& ,eeping &our

receipts in the shoe8o# and let "arm "unds create ta# reports &ou need.

The "eatures o" the "arm "unds are

Dou8le entr& accounting "or 8oth cash and accrual 8oo,s

ntegrates 7ith Farm Trac to ,eep accounting records at the same time as

,eeping "ield histories$ herd notations and chemical records.

%p ? to ? date inventor& trac,ing

'ro"ita8ilit& o" each "ield and herd o" animals is automaticall& calculated.

-upports detailed cost records "or euipment

Full pa&roll s&stem that calculates Federal and most state 7ithholdings

o monthl& closings reuired and &ear;end is simple

Records animal 7eights and "eedings to calculate "eed conversion and cost per

,ilogramme gained "or each livestoc, group.

Ta# schedule area allo7s &ou to create reports to ma,e ta# preparation eas&.

4enerate mar,et value 8alance sheets.

ncludes 8udgeted cash"lo7s

Leep "amil& living costs separate "rom "arm costs.

**


78/131

Full chec, ? recording s&stem. ncludes interactive chec, register "or eas&

editing and printing o" transactions.

'rede"ined accounts and "inancial statement "ormats are availa8le that can easil&

8e modi"ied to reduce set up time.

Depreciation amounts "or euipment$ structures$ land improvements and

livestoc, can 8e entered.

REM%RE- Farm Trac$ (icroso"t 7indo7 >< or higher$ 133 (I 'rocessor$

6+() (emor&$ 50() ard drive space.

Enhancements in "arm Funds version 500> includes: E#panded )udget

comparison Report and the cash"lo7 statement.

+.0 C!')$"(i!'

!e have learnt in this unit that "arm accounting can 8e computeriBed and that

complete "arm accounting could 8e carried out using computer so"t7are such as Farm

Funds.

+.0 S"**a&

n this unit$ &ou have learnt that:

Farm Funds is the onl& "arm accounting so"t7are that "ull& integrates 7ith "ield

records$ herd management and mapping.

For e""icient per"ormance o" the "arm "und$ it reuires Farm Trac$ (icroso"t

7indo7 >< or higher$ 133(I processor$ 6+() (emor&$ 50() ard Drive

space.

The "eatures o" the Farm Fund among other include dou8le entr& accounting "or

8oth cash and accrual 8oo,s.

6.0 T"t!& Ma&/% A((i'*%'t(

1. o7 can complete "arm accounting 8e accomplished electronicall&G

5. -tate the ma9or "eatures o" the "arm "unds.

3. !hat are the enhancements in the 500> version o" the Farm FundsG

*


79/131

;.0 R%5%&%')%( a' !th%& (!"&)%(

Farm Funds: Complete Farm Accounting. Farm "unds ? Farm Accounting "rom Farm

7or,s so"t7are$ martens "arm http:==777.153"arm 7or,ers. Com="unds.htm.

Farm !or,s -o"t7are @version 1+:

(a9or e7 "eatures and Enhancements. Farm 7or,s so"t7are 500> @2ersion 1+ ?

ntegrated "arm and Agri8usiness (anagement. http:==777.153 "arm7or,s.

Com="arm7or,s 500>. htm.

*>
http://www.123/http://www.123/http://www.123/http://www.123/


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MODULE THREE: TRIAL ALANCE AND FINAL

ACCOUNTS.

%nit 1: (eaning and -cope o" trial 8alance.

%nit 5: /imitations and common errors o" trial 8alance

%nit 3: Final Accounts

%nit +: Ad9ustments in the "inal Accounts .

%nit : Ad9ustments in the "inal Accounts 11

%nit 1 (eaning and scope o" Trial )alance

1.0 ntroduction

5.0 89ectives3.0 The 8od& o" the unit

3.1 De"inition o" Trial 8alance

3.5 Constructing a Trial )alance

+.0 Conclusion

.0 -ummar&


*.0 Re"erences and ther -ources


81/131

1.0 I't&!")ti!'

" the dou8le ? entr& principle have 8een completel& and correctl& applied$ it is

o8vious that the total o" all de8it entries 7ill 8e eual to the total o" all credit entries. )&e#tension$ the total o" the de8it 8alances should 8e eual to the total o" the credit

8alances. The list dra7n up sho7ing the 8alances e#tracted "rom all accounts is ,no7n as

a trial 8alance. This unit e#amines the de"inition o" trial 8alance$ its "unctions and ho7 to

construct it.

2.0 O,-%)ti%(

)& the end o" this unit$ &ou should 8e a8le to:

De"ine and e#plain trial 8alance -tate the "unctions= purposes o" trial 8alance

Construct a trial 8alance

3.0 Th% ,! !5 th% "'it

3.1 D%5i'iti!' !5 t&ia$ a$a')%

The Trial 8alance can 8e de"ined as the list o" accounts 8alances at a given point

in time dra7n up to test the arithmetical accurac& o" accounting entries. A trial 8alance

can also 8e de"ined as a chec, o" arithmetical accurac& o" the 8oo,,eeping to test the

dou8le 7hether it has 8een completed in the ledger or not. A trial 8alance is a list o"

8alances 8oth credit and de8it e#tracted "rom the ledgers and cash 8oo, o" a compan& as

at a particular date. t is not an account 8ut a statement sho7ing the list o" accounting

8alances. The total o" all the de8it 8alances in the accounts must eual the sum o" all the

credit 8alances.

n accounting$ the trial 8alance is a 7or,sheet listing the 8alance at a certain date

o" each ledger account in the columns$ namel& de8it and credit. %nder the dou8le ? entr&s&stem$ in an& transaction the total o" an& de8it must eual the total o" an& credit. -o in a

trial 8alance the total o" the de8it side should al7a&s 8e eual to the total o" the credit

side.

" the 9ournal entries are error ? "ree and 7ere posted properl& to the general

ledger$ the total o" all the de8it 8alances should eual the total o" all the credit 8alances.


82/131

" the de8it do not eual the credits then an error has occurred some7here in the process.

The total o" the accounts on the de8it and credit side is re"erred to as the trial 8alance

3.2 C!'(t&")ti' a t&ia$ ,a$a')%

A trial 8alance can 8e constructed in t7o 7a&s:1. )& means o" Totals

-ince a trial 8alance is a test o" arithmetical accurac&$ it 7ill 8e 7rong to adopt this

means o" totals in e#tracting an accurate trial 8alance. For this reason$ this method is

rarel& used. )ut it could 8e used 7here there are less transaction to cope 7ith in the

8oo,s.

5. )& means o" )alances

This is the most popular method used in ta,ing out the 8alances o" accounts in order to

e#tract an accurate trial 8alance. This method has some advantages amongst 7hich is the

outright revelation o" compensating errors$ 7here the total o" the de8it column o" the trial

8alance has to agree 7ith the total o" those su8sidiar& 8oo,s together 7ith the closing

cash 8alance 8ut omitting the cash 8alance in the opening entries.

The procedure "or e#tracting the trial 8alance is:

i. Close the ledger accounts

ii. !rite the correct heading: Trial )alance as at @or on speci"& the period.

iii. All the de8it 8alances in the ledger accounts 7ould appear under the de8it

column o" the trial 8alance.

iv. All the credit 8alances in the ledger accounts 7ould appear under the credit

column o" the trial 8alance.

v. The additions o" 8oth the credit and de8it columns must 8e eual.

E#amples

To calculate the trial 8alance$ "irst determine the 8alance o" each general ledger account

as sho7n in the e#ample 8elo7:

/a7&erHs /edger accounts "or the month o" -eptem8er$ 1> # $000 less$ so the total o" 8oth columns 7ill 8e

>$000 less$ and 7ill thus 8alance

+. Error o" principle: This is 7hen the entries are made to the correct amount$ andthe appropriate side @de8it or credit$ as 7ith an error o" commission$ 8ut the 7rong t&pe

o" account is used$ "or e#ample$ i" "uel costs @an e#pense account are de8ited to stoc, @an

asset account. This 7ill not a""ect the totals.

. Compensating error: This is 7here a com8ination o" errors cancel each other out

or 7here one account has 8een under or over de8ited or credited 7ith the certain amount$


87/131

and another account over or under de8ited or credited 7ith the same account. This 7ill

not prevent the trial 8alance agreement. -o$ the error remains undetected. For e#ample$

7here purchases account 8alance is increased 8& 5$000 and sales account 8alance is

also increased 8& 5000$ the t7o accounts 7ould cancel out the error.

6. Error o" Reversal: This is 7hen entries are made to the correct amount$ 8ut 7ith

de8its instead o" credits$ and vice versa$ "or e#ample$ i" a cash sale "or 1$000 is de8ited

to the sales account$ and credited to the cash account$ such an error 7ill not a""ect the

totals.

*. Error o" complete Reversal o" Entr&: This error occurs 7here the dou8le entr& "or

a transaction is reversed resulting in a situation 7here8& the account that ought to 8e

de8ited is credited and the account that ought to 8e credited is de8ited. For e#ample$ an

amount paid to a supplier ma& 8e 7rongl& de8ited to the cash 8oo, and credited to his

personal account.


88/131


89/131

;.0 R%5%&%')%( a' !th%& (!"&)%(

gen$ R. @500+: Financial Accounting (ade simple. 2olume 1$ E/;TDA ventures

/imited /agos$ igeria.

Trial 8alance. http:==777.netm8a.com=accounting="in=process=trial=Trial 8alance ? !i7ipedia$ the "ree enc&clopedia. http:==en.7i,ipedia.org=7i,i=trial

8alance.
http://www.netmba.com/accounting/fin/process/trial/http://en.wikipedia.org/wiki/trialhttp://www.netmba.com/accounting/fin/process/trial/http://en.wikipedia.org/wiki/trial


90/131

U'it 3: Fi'a$ A))!"'t(

1.0 ntroduction

5.0 89ectives

3.0 The )od& o" the unit

3.1 (anu"acturing account in a manu"acturing organiBation

3.5 Trading account

3.3 'ro"it and loss Account

3.+ 'ro"it and /oss Appropriation account in partnership and limited lia8ilit&

companies

3. )alance sheet

3.6 otes to the accounts

+.0 Conclusion

.0 -ummar&



>0


91/131

1.0 I't&!")ti!'

n this unit &ou 7ill learn a8out "inal accounts. ou 7ill 8e acuainted 7ith the

various accounts that ma,e up the "inal account.

2.0 O,-%)ti%(t is e#pected that$ at the end o" this unit$ &ou should 8e a8le to:

E#plain the concept o" "inal accounts.

'repare the various accounts that ma,es up the "inal accounts

3.0 Th% ,! !5 th% "'it

The term "inal account is applied to the "ollo7ing in its 8road "orm.

i. (anu"acturing account is a manu"acturing organiBation.

ii. Trading account

iii. 'ro"it and loss account

iv. 'ro"it and loss Appropriation account @in partnership and limited lia8ilit&

companies

v. )alance sheet and

vi. otes to the account @in limited lia8ilit& companies.

3.1 Ma'"5a)t"&i' A))!"'t

The main purpose o" preparing the manu"acturing account is to determine the cost

o" production 7hether it is more pro"ita8le to continue in production o" the goods "or sale

or it is more economical to purchase them 7holesale "rom outside suppliers. " it is "ound

that the cost o" production o" the good is lo7er than outside purchase$ them it is

7orth7hile producing 8ut i" the cost is higher than outside procurement$ then it is

uneconomical to produce 7ithin.

3.2 T&ai' A))!"'t

The trading Account helps in determining the trading position o" a 8usiness. The

aim o" the Trading Account is to ascertain the gross pro"it or gross loss "or a certain

period. The gross pro"it or gross loss is arrived at a"ter charging the goods and materials

and other items o" direct cost.

>1


92/131

The gross pro"it "igure can 8e used to compare the per"ormance o" one 8usiness 7ith

another and to help in ta,ing certain progressive 8usiness decisions 7ith the pricing o"

goods "or sale.

3.2.1 T&ai' A))!"'t La!"t:

De8it: on the de8it side are placed the stoc, at the start i.e. at the commencement o" the

period to 7hich the account relates.

All purchases @cash and credit out o" 7hich all returns @returns out7ards are to 8e

lessen$ carriage in7ards i.e the charge made "or conve&ance o" goods 8& land. /ess

closing stoc, o" goods availa8le at the end o" a trading period.

Credit: on the credit side are placed the sales$ less all sales returns @Returns in7ards$

closing stoc, o" good ?i.e the value o" the goods unsold at the end o" the period.

The summar& o" the la&out is as "ollo7s:

pening -toc,

### -ales

### 'urchases ###

/ess Returns

ut7ards ## ### /ess Returns n7ard ## Carriage n7ards #

4oods availa8le "or sale ###

; Closing stoc,Cost o" goods sold ###

4ross 'ro"it c=d ##

### ###

N!t%:

The di""erence 8et7een cost o" goods sold and the et sales @i" there is Returns n7ards

represents the 4ross pro"it made and this is trans"erred do7n to the credit o" pro"it and

loss Account.

3.3 P&!5it a' L!(( A))!"'t

>5


93/131

The pro"it and /oss Account is an account into 7hich all gains and losses are

collected. !here the gains made in the trading period e#ceed the losses or e#penses$ the

e#cess is the et pro"it. o7ever$ 7here the losses are greater than the gains$ the

di""erence is the et /oss.

The 'ro"it and loss account is used to ascertain the net pro"it or net loss "or the

same period o" trading a"ter charging administrative selling and distri8ution e#penses and

some other "inancial charges @li,e discount allo7ed$ 8an, charges$ interest on loan etc

against the gross pro"it or included 7ith the gross loss to increase the non;pro"ita8ilit& o"

the 8usiness during the "inancial &ear.

3.3.1 P&!5it a' L!(( A))!"'t La!"t:

The pro"it and /oss Account$ contains on the credit side$ the 4ross pro"it sho7n

8& the Trading Account and on the De8it side all the e#penses or losses incurred in

carr&ing out the 8usiness.

I

'ro"it and loss Account "or the &ear ended 31stDecem8er$

4ross /oss )=d ## 4ross 'ro"it 8=d ##!ages and -alaries ## Discount Received ##

Rent and Rates ## nterest on Deposit Account ##

nsurance 'remium ## Recoveries or partAdvertising ## Recoveries o" )ad De8ts ##

Carriage ut7ards ## -elling )onuses ##

Discount Allo7ed ## 'ro"it on sale o" Asset ##-tationer& and 'ostages ## ncome "rom nvestment ##

)ad De8ts ## Commission Received ##

'rovision "or 8ad de8ts ## Rent Received ##

Depreciation ## et /oss ##/ighting and eating ##

Telephone E#penses ##

/oan nterest ##)an, charges ##

4eneral E#penses ##

Repairs and Rene7als ##Accounting N 'ro"essional charges ##

Travelling E#pense ##

-alesmen Commission ##Distri8ution E#penses ##

Entertainment E#penses ##

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/egal charges ##

et 'ro"it c=d ## ##

et /oss 8=d ## et 'ro"it 8=d ##

ote:

4ross pro"it and 4ross /oss$ et 'ro"it and et /oss "igures occur at the same time$ it

onl& sho7s the side the& 7ould appear i" an& o" them should occur.

(oreover$ e#penses incurred in carr&ing on the a""airs o" a 8usiness concern 7ill

var& in accordance 7ith the surrounding circumstances. This is also applica8le to gains

made. The a8ove list o" e#penses and income are 8& no means e#haustive.

3.+ P&!5it a' L!(( A44&!4&iati!' A))!"'t

The o89ective o" the 'ro"it and loss appropriation account is to sho7 all

dispositions$ divisions and appropriations o" the net pro"it and loss.

The 'ro"it and /oss Appropriation Account is the third segment o" the

conventional Trading$ 'ro"it and /oss Account. The et pro"it o" the 'ro"it and /oss

Account is usuall& 8rought do7n to this account as an opening 8alance. Added to it is

the amount charged "or interest on dra7ings.

n the De8it side are interest on capital so charged on each partner$ the amount

paid as commission or salaries to partners. The di""erence 8et7een the de8it and credit

sides represents the 8alance o" pro"its or loss to 8e shared 8et7een or among the partners.

3. Th% a$a')% Sh%%t

The 8alance sheet is a statement o" the assets at a particular moment in time and

the lia8ilities and proprietorHs capital$ )esides 8eing the statement o" asset and lia8ilities$

it also sho7s 7hether a 8usiness is solvent or insolent i.e. the a8ilit& o" the 8usiness and

its ina8ilit& to meet its "inancial o8ligations as at 7hen due. The di""erence 8et7een the

assets and lia8ilities represents the capital o" the 8usiness.

The 8alance sheet sho7s the summar& "orm o" the "inancial state o" the concern as

disclosed in the 8oo,s. t is to 8e noted that the 8alance sheet is not an account 8ut a

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statement o" the assets and lia8ilities o" a person or 8usiness on a given date arranged in

the "orm o" the 8oo,;,eeping euation 7hich runs thus:

Capital /ia8ilities O Assets

This is ,no7n as the accounting euation.

I

)alance sheet as at 31stDecem8er$ ..

Capital: Fi#ed Assets: Capital ## /and and )uildings ##

Add: et 'ro"it ## /ess: 'rovision "or Depreciation ## ##

## 'lant N (achiner& ##

/ess: Dra7ings ## /ess 'rovision "or Dep ## ## ## (otor vehicles ##

/ess: 'rovision "or Dep ## ##

Furniture and "ittings ##

/ess: 'rovision "or Depreciation ## ##/oose Tools ##

/ess: 'rovision "or Deprecation ## ##/ong Term /ia8ilit&:

/oan ##

Current Assets:-toc, ##

Current /ia8ilities De8tors ##

/ess:)an, overdra"t ## 'rov. For )ad de8ts ## ##

Trade creditors ## )ills Receiva8le ##

)ills pa&a8le ## )an, Deposit ##Accrued E#pense ## Cash ##ncome Received in

Advance ##

'repa&ments ##

Accrued ncome ##

## ##

## ##

3. N!t%( t! th% A))!"'t(

The notes to the accounts give a 8rie" e#planator& in"ormation to the users o"

accounting statements as to ho7 and 7h& some items have 8een treated in the 8oo,s and

states its compliance 7ith the legal reuirements o" disclosure o" some relevant and

signi"icant transactions.

E#ample

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The "ollo7ing in"ormation is in respect o" the 8usiness a""airs o" laolu7a and

-ons Enterprises "or the &ear ended 31st(arch 1> # +

i. -toc, on 31st(arch$ 1> # + 7as 3 # 3 at 1 percent per annum

and onl& +$00 have 8een paid as interest throughout the period.

vi. 50 '.a deposit on )an, /imited 7as made on 31st(a&$ 1> # 3.

vii. (aintain provision "or dou8t"ul de8ts on de8tors as percent and ad9ust the

provision "or discounts allo7a8le on de8tors to 1 percent.

viii. Create a provision "or discount received on creditors at V percent.

i#. 'rovide "or interest on capital account as 1 percent.

#. The "ollo7ing e#penses are under;paid: Telephone +$000 and salaries and 7ages

11$00.

#i. -alaries and 7ages paid include 3$00 "or direct 7ages.

#ii Distri8ution and selling e#penses 7as over;paid 8& 1$00.

"%(ti!'

1. 'repare the trial 8alance "rom the e#tract o" the 8oo,s during the same period.

5. (a,e the necessar& ad9ustments and prepare:

i. The Trading and 'ro"it and loss Account "or the &ear ended 31st(arch$ 1># + and

ii. The )alance sheet as at 31st(arch$ 1> # +

@ote: sho7 &ou ans7er to the nearest aira

S!$"ti!'

1. Trial 8alance: The "ollo7ing is the trial 8alance e#tracted "rom his 8oo,s during

the same period.

DR

CR

'urchases and -ales 00$000 *0$000

Returns 10$00 1$000

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De8tors and Creditors 60$00 *$100

Carriage on purchases 1$00

Carriag

nigeria farm accounting

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