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Closing Profit and Loss Entries
Make closing journal entries of profit and loss accounts in the order and manner set forth in the profit and loss account, 215, making a separate journal entry for each account, using the exact form shown in the account.
Memorandum: Make direct ledger entry.
Credit finished goods, 6, red ink entry, with the value of the inventory of finished goods at the close of the fiscal year after all profit and loss entries have been made.
Assignment No. 2
Farm Accounting System
Chart of Accounts-Farm
Farm petty cash, 251.
Farm seed, inventory, 252.
Farm fertilizers and sprays, inventory, 253.
Farm lands, 260.
Farm improvements to lands, 261.
Farm buildings, 262.
Farm machinery and equipment, 263.
Farm livestock, 264.
PROVISIONS FOR DEPRECIATION: DEDUCTIBLE FROM FIXED ASSETS:
Farm improvements to land, 270.
Farm buildings, 271.
Farm machinery and equipment, 272.
DEFERRED CHARGES TO OPERATIONS:
RESERVES OF PROFIT (LIABILITY):
Farm reserve for interest on investment, 285.
Farm reserve for contingent expense, 287.
Farm labor, 290.
Farm livestock expense, 291.
Cattle and livestock expense, 291B.
Farm rents, 292.
Farm repairs and maintenance, 293.
Improvements to land repairs and maintenance, 293A.
Machinery and equipment repairs and maintenance, 293C.
Improvements to land depreciation, 294A.
Farm taxes, real and personal, 297. FARM INCOME:
Farm green produce sold (list by varieties), 300.
Horses and mules, 301A.
Cattle and livestock, 301B.
Poultry and eggs, 301C.
UNALLOWABLE EXPENSES: NOT DEDUCTIBLE FROM INCOME:
Unallowable expense, 302.
Farm interest on investment, 303.
Farm Accounting System
It is quite common for canned goods manufacturers to either own, or lease farm lands and orchards for the purpose of growing their own crops and where this is the case additional accounts to those in the foregoing pages will be required and where farming is engaged in on an extensive scale these accounts should be kept independently of those relating to the general manufacturing operations in order that the profit, or loss, resulting from such operations can be readily and independently arrived at. It will not be necessary to create a farm cash account or a farm balance sheet in cases where the operations are conducted on a minor scale as the manufacturing cash account and balance sheet will take care of the farm accounts.
Where the extent of the farming operations justify a column on the debit and one on the credit side of the cash book can be used exclusively for farm cash debits and credits and a petty cash fund can be supplied the farm superintendent which will be handled in the same way as the petty cash fund in the manufacturing accounts. (See account No. 1.)
Where the farming operations are confined to the leasing of small acreage for the purpose of planting to some seasonal crop such as peas, beans, or tomatoes and the acreage is sub-leased to tenants under con
tract to furnish the factory with the crop grown it will not be necessary to keep independent farm accounts.
The only accounts necessary will be with "farm lands rented," and different tracts, or farms, can be numbered, or named, so the profits can be determined on each tract and shown separately. The accounts will be debited with the rental paid and with all expenses incurred, crediting cash or the creditor. The account will be credited with the value of the crop received and green produce will be debited. The account will be closed into profit and loss at the close of the fiscal year. Invoices for the farm accounts can be handled in the same manner as for plant operations distribution being made to the farm accounts by the invoice clerk.
The following accounts will, as a rule, cover all the operations of farming though a more elaborate system can be devised if operations.
Any of the investment, reserve or expense accounts incorporated in the manufacturing system of accounts can readily be made a part of the farm system.
Account No. 251-Farm Petty Cash
A cash fund to be supplied the farm superintendent out of which to pay all petty items which it is impractical to send to the general office for payment. These disbursements will be listed on the regular "petty cash reports" and be supported by cash receipts or invoices and be treated in the same manner as the branch plant petty cash reports.
Closing Entry: The petty cash funds are current assets and will appear as such in the balance sheet, "Farm Petty Cash Funds."
Account No. 252-Farm Seed
See manufacturing accounts, 8 and 109. Debit this account in the farm ledger with the cost of all seed purchased and also with the cost of all seed raised on the farm.
Credit cash, 2, the creditor, or the crop producing the seed.
Credit this account with the value of all seed grown on the farm or purchased for it and then furnished free to others who are growing crops for the factory. Also with the proceeds of all seed sold to outsiders and with any loss on seed sold to farmers at a discount.
Closing Entry: Inventory all seed at the close of the fiscal year. Credit the account with the value of such inventory and transfer the balance, by journal entry, to farm profit and loss, 310.
The value of the inventory will be transferred to the balance sheet as a current asset. Farm inventory. Seed.
Account No. 253-Farm Fertilizers and Sprays
Debit this account with the cost of all fertilizers and sprays purchased. If any crops raised on the farm, or any manure produced on the farm, is used for fertilizing, debit this account with the cost of raising such crop or with the value of the manure used.
Credit the firm from whom purchased, cash, 2, or the crop producing the fertilizer or farm sales and income, 301.
Closing Entry: At the close of the fiscal year take an inventory of the
fertilizers and sprays on hand. Credit the account with the value of such inventory and transfer the balance, by journal entry, to farm profit and loss, 310.
The value of the inventory will be transferred to the balance sheet as a current asset. Fertilizers and sprays. Farm inventory.
Account No. 260-Farm Lands Investment
Debit this account with the total purchase price of all farm land acquired. These debits will consist of the cost of the land, the cost of surveying, examination of title, recording fees, commissions, etc.
Credit this account with the cost value of any land sold. Should the proceeds from the sale be greater, or less, than the original cost, the difference should be transferred to surplus adjustment account.
The balance of the account should represent the cost value of land owned and operated.
Closing Entry: Balance sheet. Fixed asset. Farm land. Account No. 261—Farm Land Improvements, Investment
In setting up farm accounts it is best to set up separate accounts for land and improvements to land for the reason that farm land improvements are usually more valuable than in the case of land acquired for manufacturing purposes.
Debit this account with the cost of all new improvements to the land such as road work, fences, sidewalk construction, planting of orchards and trees, cost of boring wells for water supply, irrigation ditches, pipe lines, etc.
Credit this account with the cost value of any improvements sold when such were originally charged to this account, charging or crediting the difference between the cost and the selling value to surplus adjustment
Closing Entry: Balance sheet. Fixed asset. Improvements to farm
Account No. 262–Farm Buildings and Improvements to Farm Buildings,
Subdivide this account into sub-accounts with each unit of farm buildings such as residence, barn, granary, packing house, drying house, garages, dehydrating plant, cottages for help, etc.
(Farm residences are not depreciable for income tax purposes.)
Debit the proper subdivision of the account with the initial cost of the building, and with all new buildings afterward erected and with all the new permanent additions, betterments and improvements to the buildings.
Credit the proper subdivision of this account with the cost of buildings replaced or dismantled, Charging cash, 2, or its equivalent for the amount if sold, and Charging provision for depreciation, 271, with the amount which has been accumulated in the provision account for the item in question only and to surplus adjustment account, Charge or Credit, the loss or gain resulting.
When an initial purchase of land includes the buildings already located on the land it will be necessary to make an appraisement of the land and
buildings separately, the totals of the appraisements to balance with the total purchase price.
Closing Entry: Balance sheet. Fixed asset. Farm buildings and improvements to farm buildings.
Account No. 263-Farm Machinery and Equipment Investment
Subdivide this account into the following sub-accounts: 263A, pumps and pumping plant; 263B, farming implements; 263C, wagons and harness; 263D, tractors and engines; 263E, automobiles and trucks; 263F, miscellaneous.
Debit the account, under proper subdivisions, with the cost of all new farm machinery and equipment purchased for the use, or benefit, of the farm.
Credit the proper subdivision of the account with the cost value of all machinery and equipment replaced, sold or discarded, Charging cash, 2, if sold for cash, with the amount received and Charging provisions for depreciation, 272, with the amount that has been accumulated in the provision account for the particular machinery and equipment sold and to surplus adjustment account, Charge or Credit, the loss or gain resulting. Closing Entry: Balance sheet. Fixed asset. Farm machinery and equipment.
(Expense and upkeep on automobiles are deductible from income only when used entirely for farm purposes. If used one-half for farm purposes then one-half of the expense of operating is deductible from income.)
Note: Do not set any fixed percentage of depreciation for this account. Make an appriasement of the account at the end of each year and credit the difference in value to provision for depreciation, 272, and debit depreciation expense, 294C.
Account No. 264-Farm Livestock. Investment
Subdivide this account into 264A, horses and mules; 264B, cattle and livestock; 264C, poultry. (The privilege of raising poultry will usually be given gratis to the superintendents or the lessee's wife and all profits derived therefrom will belong to her.)
Debit this account with the total amount of the purchase price of all livestock, whether purchased for work, breeding or resale.
Credit the proper subdivision of the account with the cost value of all livestock sold or lost, Charging cash, 2, for the amount received, if sold, and Charging farm livestock, provisions for depreciation, 264, with the amount which has been accumulated in the provision account for the items in question and to surplus adjustment account, Charge or Credit, the loss or gain resulting.
Closing Entry: Balance sheet. Fixed asset. Farm. Livestock.
Account No. 270—Improvements to Farm Lands, Provision for Depreciation 270A, water wells (depletion), 10 per cent.
270B, orchard trees, 3 per cent to 6 per cent, depending on variety. 270C, irrigating pipe lines, 10 per cent.
270D, fences, 10 per cent.
Debit depreciation expense, 294A, with the amount of depreciation. and obsolescence to be charged for the year.