(I 
THE UNIVERSITY OF TEXAS BULLETIN 

No. 3040: October 22, 1930 
A SYSTEM OF ACCOUNTING PROCEDURE 
FOR LIVESTOCK RANCHES 

By 
FREDERICK W. WOODBRIDGE 
Professor of Accounting, University of Southern California 
Formerly Adjunct Professor of Accounting, The University of Texas 

Bureau of Business Research 
Research Monograph No. 5 


PUBLISHED BY 
fHB UNIVERSITY OF TEXAS 
AUSTIN 

Publications of The University of Texas 
Publications Committees: 
GENERAL: 
FREDERIC DUNCALF MRS. F. A. PERRY 
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J. L. HENDERSON G. W. STUMBERG 
H.J. MULLER A. P. WINSTON 
OFFICIAL: 
E. J. MATHEWS KILLIS CAMPBELL 
C. F. ARROWOOD C. D. SIMMONS 
E. C. H. BANTEL BRYANT SMITH 
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Additional copies of this publication may be p-rocured from the 
Bureau of Business Research, The University of Texas 
Austin, Texas, 
at 
$1.50 per copy 

THS UNl'RllSITT or nus Plt&H, 4Ua71Jt 
THE UNIVERSITY OF TEXAS BULLETIN 

No. 3040: October 22, 1930 
A SYSTEM OF ACCOUNTING PROCEDURE 
FOR LIVESTOCK RANCHES 

By 
FREDERICK W. WOODBRIDGE 
ProfeHor of Accounting, University of Southern California 
Formerly Adjunct Professor of Accounting, The University of Tel<aa 

Bureau of Business Research 
Research Monograph No. 5 

PUBUSHBD BY THE UNIVERSITY FOUR TIMES A MONTH, AND ENTERED A8 
SECOND-CLASS MATTER AT THE POSTOFFICE AT AUSTIN. TEXAS, 
UNDER THE ACT OF AUGUST 24, 1912 

The benefits of education and of aaeful knowledge, generally diffused through a community, are essential to the preaervation of a free govern· ment. 
Sam Houaton 
Cultivated mind is the guardian genius of democracy, and while guid­ed and controlled by virtue, ia the noblest attribute of men. It is the only dictator that freemen acknowl­edge and the only security that free­men desire. 
Mirabeau 8. Lamar 
Copyright, 1930 
By 
The University of Texas Bureau of Business Research 

CONTENTS 

PAGll 
INTRODUCTION ------------------------------------------------------------------------------------7 ORIGINAL PAPERS________ __
_
_____
_
___________________________
__________________________ 10 
Invoices -------------------------------------------------------------------------------------------------10 
Checks ------------------------------------------·-------------------------------------------------13 Memorandum Book.____________________________________ _ 
_
_____________________________________ 15 
Account Sales·-------------------------------------------------------·----------------------17 Deposit Slips-----------·---------------·---------------------------------------------------------------17 
Bank Statements____________________________________ _
_____________________________________ 18 
Inventories ------------------------------------------------------------------------------------------. 19 Inventory of Cattle__________ __
___
________________________________
_____
____ _
_________ 21 Inventory of Equipment____________________ _________________________ ____ _ 
_
_________ 33 Inventory of Improvements_______________________________________________
____________ 43 
THE JOURNAL·----------------------------------------------------------------------------------48 Explanation of Clumns Used in the Journal____
____________
_______________ 49 THE LEDGER-ASSET ACCOUNTS_________ __
__________________________________ 57 General Principles_____ __
__________ -------------------------------------------------------------57 Cash ---------------------·------------------------------------------------------------------60 Notes (Bills) Receivable___________________________ -----------------------------------------62 Accounts Receivable_____________________________________________________________ _
_____________ 66 
Securities -----------------------------------------------------------------------------------------73 
Inventory Accounts________________________________________________________________________ 80 Equipment Account..-----------------------------------------~----------------80 The Improvement Account and Reserve for Depreciation of Improvements __ 
_
_
_------------------------------------------------------------------85 Land -·--·----------------------------------------------------------------.----------98 Other Assets ---------------------------------------------------------·-------···-------------------108 THE LEDGER CONTINUED-LIABILITY ACCOUNTS____________ 114 Accounts Payable----------------------·--·--------------------------------------------------------114
Notes Payable____________________________________________________________________ _
___
_____ 118 Mortgages Payable_______
_
________________________________________________________________ 125 
THE LEDGER CONTINUED-NET WORTH ACCOUNT_______ 131 Individual Proprietorship______________________________________________________________
_
_ 133 Partnerships -------------------------------------------------------------------------------------138 Corporations ------------------------------------------------·--------------------------------147 THE LEDGER CONTINUED-INCOME AND EXPENSE ACCOUNTS -----------------------------··-----·-·-----------·
------------·-·-------------------· 158 Income _______·-· ------· ------------------------------------------------------------------------------·--158 Expense ---------------------------------------------------------------------------------------------167 THE TRIAL BALANCE AND CLOSING THE BOOKS__ ______________ 178 The Trial Balance____ __ 
_
__________________________________________________________ _
__________ 178 
Closing the Books -------------------------·. ------------------------------------------------180 Statements --------·----------------------···-·---------··----------------------------------------187-193 
LIST OF FIGURES 

FIGURE PAGE 1 Purchase Invoice--Household Supplies____________________________________ 11 2 Purchase Invoice--Construction Supplies_________________
______ ___________ 12 3 Check -----------------------------------------------------------------------------13 
4 Account Sales________________________________
______
____________
_______ 16 
5 Deposit SliP-----------------------------·------------------------------------------------------18 
6 Horse Inventory______
_ 
_
___________________________
_____________ _________________ 20 7 Livestock lnventory__________
__ ____ __________________________________________Facing 24 8 Equipment Inventory_____________ __ 
__________________________________________ Facing 36 9 Improvements Inventory___________
______ __
__ ____
__
______
_______
_____Facing 44 10 General Journal·----------________________________________________________ __
______ Facing 49 11 Cash Account___________ _
_________________________________________________________ _________ 61 12 General Journal-Use with Notes Receivable_________________ __
________ 64 12A Notes Receivable Account.___________________
___________
__________________________ 65 13 General Journal-Use with Accounts Receivable____________________ 68 13A Accounts Receivable.___________________________________________________________ _
__ _ 
_ 
69 14 General Journal-Use with Securities_
_____________________________________ 77 14A Securities Account________________________________________________ _
___ _
________ 78 
15 General Journal-Use with Equipment_____________________________________ 82 15A Equipment Account________________________________ _
_____________________________________ 83 16 General Journal-Use with Improvements_____________ _
_____________ ___ 86 16A Accounts for Improvements, Reservoir, Reserve for Depre­
ciation for Improvements, and Fire Loss___________ __
___ 
___________ 
87 17 General Journal-Use with Land________ _
______________________
________ 103 17A Accounts for Land, Profit on Land Sales, and Loss on Land Sales ---------------------------------------------------------------------104 18 General Journal-Use with Other Assets_________________________________ 109 18A Accounts for Store, Improvements, Store Profits, and Store Losses ---------------------------------------------------------------------------110 19 General Journal-Use with Accounts Payable_______________________ 116 19A Accounts Payable__
__ ·------------------------------------------------------------117 20 General Journal-Use with Notes Payable______________
_____________ _ 
121 
20A Notes Payable Account ----------------------------------------------------------122 21 General Journal-Use with Mortgages Payable___ _
_____________ _
_ 127 21A Mortgages Payable Account____________________________________________________ 128 
22 General Journal-Use with Pr oprietorship______________________ _
______ 135 22A Capital and Personal Accounts.______________________ _
_
_______________________ 136 23 General Journal-Use with Partnership__________________________ Facing 139 24 General Journal-Use with Corporations______________________ Facing 149 
25 General Journal-Use with Income ------------------------------------------163 25A Unearned Lease Income Account, Oil Lease Income and Royalties Account, and Boone Oil Company Account__________ 164 26 General Journal-Use with Expenses_________________________ _
__
______ 173 
27 Trial Balance_
___________________ _
_______________________ _
___________________
_________ 187 28 General Journal-Use in Closing Books_________________ __
____________l88-189 29 Balance Sheet______________________________ _
___________________ _
________ __
____________l90-191 30 Profit and Loss Statement _____________________________________________________l92-193 
PREFACE 
This study in Ranch Accounting is the second in the Bu­reau of Business Research series dealing with the great livestock, meat packing, and meat distribution industries in Texas. It was undertaken at the request of leaders in the livestock industry. 
The book is a detailed analysis of a complete ranch ac­counting system. It will be useful especially to ranchmen interested in putting their operations on a better business basis, to accountants who keep books for ranchmen, and to many students from ranch homes who are interested in ranching as a business. 
A. B. Cox, Director. June, 1930. 

ACKNOWLEDGMENT 
Grateful acknowledgment is made to the many ranchers, ranch accountants, and public accountants who have gener­ously allowed the author to take their time in discussing various phases of this problem. Special acknowledgment must be made to Mr. D. T. Jones of San Angelo, Texas, Mr. 
F. G. Rogers of San Antonio, Texas, and to Mr. Rex Ragan and Mr. H. Dean Campbell of Los Angeles, California. 
F. W. WOODBRIDGE. 
University 	of Southern California. June, 1930. 
INTRODUCTION 
The various steps in the process of keeping proper ac­counting records, portraying the financial conditions, and the results of the operations of a business are not unlike the steps carried out by many ranchers in the handling of their stock. Each of these general steps may be compared with a similar operation in the handling of cattle, thus: 
period. 
Accounting  Cattle  
First Step:  Gathering the information on the various original papers.  Working the cattle out of the hills and brush and rounding them up near the  
corrals.  
Second  Placing a money value on such  Ear marking and branding.  
Step:  items  as  have  not  previously  
been valued.  
Third Step:  Recording the items in an or­derly manner. (a) Classifying each entry  Segregating the cattle: (a) Running them through the chutes.  
as it is placed in the journal. (b) Entering each item ac­cording to the journal  (b) Holding each grade and kind in separate groups or corrals.  
classification  in  the  
proper  ledger  account.  
Fourth Step:  Checking the results by taking a trial balance of the ledger.  Looking over each corral to see if any cattle are there which should be graded dif­ 
ferently.  
Fifth Step:  Closing the books and making up the statements showing the financial condition of the busi­ Making a final count of the cattle held in each corral or group, thus getting a record  
ness and the results of the pe­riod's operations.  of the total number on hand and the calf crop for the  

This comparison is, of course, rather general. It may help those who are not familiar with the various operations to get a general picture of the accounting process. The fol­lowing illustration shows each of these steps in a little more detailed form. 
1. 	Bringing together the infor­mation regarding various transactions. 
Original Papers: 
1. 
Invoices. 

2. 	
Account Sales-Sheet show­ing amount of sales and ex­penses when livestock is so.Id through brokers. 

3. 	
Notes Receivable. 

4. 
Checks. 

5. 
Livestock Inventory. 

6. 	
Equipment Inventory. 

7. 	
Improvements Inventory. 

8. 	
Land Inventory. 


2. 	
When necessary, placing a Valuing the individual items or 

money 	value on the items. groups of items on the Inven­tory Sheets. 

3. 
Recording the items in an or­


derly 	manner. Book of Original Entry or Primary Record. 
Book of Final Entry or Final Record. 
Journal Entries are made in this record in the order in which they oc­cur, and when they are entered they are analyzed according to the ledger accounts affected. 
Ledger A classified record of transac­tions so arranged that the en­tries will balance and that the total of each of the parts of the various transactions may be ob­tained. 
4. 	
Checking the results. Checking the mechanical accuracy of the bookkeep­ing. 


Trial Balance If all entries have been made correctly, the total of all entries made on the right side of the ledger will exactly agree with the total of all entries made on the left side. 
5. 	
Statements showing the con­ditions of the business at the end of the year. 

The results of the year's operations. 
The statement of financial condition. 
Profit and Losa Statement Various sources of income are listed and totaled. Various ex­penses are also listed and to­taled. The total expense is deducted from the income to de­termine the profit, or loss jf expenses exceed the income. 
Balance Sheet All items of value which are owned are listed and totaled. All debts are then subtracted from the total of the items owned, the difference being the proprietor's interest in the busi­ness. 
There is nothing mysterious about an accounting system any more than there is about the operation of a stock ranch. Each of the general steps which has been shown in this out­line has certain problems, just as each step in handling cattle, sheep, or goats has certain problems. When a study is made of each step in its proper order, there is no reason why anyone who is reasonably diligent and careful may not acquire a good grasp of the general principles of ranch ac­counting, if not all the details. The system as outlined follows each of the steps in the order in which they have been illustrated. 
Because of the fact that many ranchers will not have the time nor inclination to keep their own accounts, special at­tention is given to the matter of original papers. Every successful business must maintain adequate records. Be­cause of the nature of the cattle business, in a great many instances the more technical accounting process can be car­ried on by public accountants in a nearby town, at a rela­tively small expense. It will be necessary for the rancher or his foreman to see that the primary data contained in the original papers get to the person who is keeping the books. 
ORIGINAL PAPERS 
Every set of accounts, whether it is kept for a cattle ranch, department store, bank, or railroad, must depend upon the original papers arising from the various transac­tions for most, and frequently all, of the figures which are placed in the books. No set of books can be any more ac­~rate than the original sources from which the records are wken. It has been previously explained that the system outlined herein is divided into three parts. The original papers make up the first of these parts and are the only part which must be looked after by the rancher or his fore­man or manager as the case may be. This must be care­fully done if the records in the books are to be relied upon. 
INVOICES 
In most instances, invoices are given showing the amount of each purchase. These may be rendered at the time of the purchase or as a monthly or periodic statement showing all of the transactions for the period covered. 
The items of household supplies included in the Purchase Invoice shown in Figue 1 would be classified as follows : 
Table  Truck  
Personal  Expense  Equipment  Expense  
$ .15  $ 3.50  $125.00  $12.00  
3.00  1.00  
1.00  2.00  
3.00  1.50  
5.00  6.00  
2.50  1.00  
3.00  1.00  
20.00  .25  
4.75  1.50  
.35  .75  
.50  
7.00  
$42.75  $26.00  $125.00  $12.00  

PURCHASE INVOICE 
Austin, Texas, January 2, 1929. 
Mr. R. G. Howard, 492 South Market Street, City. 
M. A. MORRIS & COMPANY 
1 1 3 2 1 2 3 1 1 1 2 1 60 1 1 3 1 12 12 20 8 6 1 
Handkerchief Man's Hat Pr. Socks @ .33113 Pr. Overalls @ 1.50 Pr. Trousers Aprons@ 1.25 Shirts, work @ 1.00 Dress Pr. Men's Shoes Pr. Garters Table Cloths @ 1.75 Motor, gasoline Gal. Gasoline @ .20 Can Syrup Sack Flour Lbs. Coffee @ .50 Sack Sugar, 100 Lbs. Lbs. Rice Lbs. Macaroni Lbs. Bacon Lbs. Salt Lbs. Nucoa Box Crackers Spices 
$ .15 
3.00 
1.00 
3.00 
5.00 
2.50 
3.00 
20.00 
4.75 .35 
3.50 
125.00 
12.00 
1.00 
2.00 
1.50 
6.00 
1.00 
1.00 
7.00 .25 
1.50 .75 .50 
$205.75 
Figure 1 
The items of construction supplies included in the Pur­chase Invoice shown in Figure 2 would be classified as fol­
lows:  
New Reservoir $ 290.00 500.00 200.00 200.00 10.00  Repairs $45.00 5.00  
$1,200.00  $50.00  

PURCHASE INVOICE 
Austin, Texas, January 6, 1929. Mr. E. J. Lombard, 997 E. 14th Street, Fort Worth, Texas. 
J. J. McINTYRE COMPANY 
Pipe and Fittings Cement  $290.00 500.00  
Iron  200.00  
Lumber  200.00  
Wire  45.00  
Staples Nails  6.00 10.00  $1,250.00  

Figure 2 
All invoices should be kept in a file so that they are available when the accounting records are being written up. This is necessary because they are very valuable as checks on the amounts which are paid to individuals or concerns issuing the invoices and also because they are frequently an absolute requirement before proper entries may be made in the books. In the illustrations given above, there are listed items which were purchased for the ranch "equipment," the owner's personal account and for the table. 
That many ranchers are quite indifferent to such classi­fications is unfortunate for two reasons. First-with the constantly increasing value of herds (due to better breed­ing rather than market changes) the broad margin of profit which prevailed during the years of open range and low land values is constantly decreasing. Because of this fact, many are forced into bankruptcy during each down­ward turn of cattle prices. Many of these failures could be avoided if a more careful record of actual expense and actual income were maintained during the better years. These records could then be used as sources of information from which to draw conclusions regarding necessary and probable expenses during those years in which prices are low. Second-these invoices should be kept as evidence of the transaction and its proper entry on the books so that subsequent misunderstanding may be avoided with repre­
sentatives of the Income Tax division of the Treasury De­
partment. 
When invoices of this sort are paid by check, reference may be made on the check to the particular invoice or state­ment covered. If complete references are made, the dis­tribution.may be made on the books from the invoice. 
To summarize, we may say, first, that invoices and bills of sale should be required from every store where purchases are made ; second, these invoices should be reviewed by the person keeping the books and the person making or ap­proving the purchase so that each item may be properly charged; third, that each invoice should be carefully filed after the entry has been made so that it may be reviewed by the auditors or Income Tax Inspectors at some future time. 
CHECKS 
Figure 3 shows a voucher check. Every rancher under­stands the required procedure for making checks. Many are accustomed to making notations on the check to show 
CHECK 
JOHN DOE & COMPANY 
Cattle No.______________ 
Midland, Texas,_______________________________________193__ 
PAY TO THE ORDER OF---------------------------------------------------------------$----------------------------­
--------~-------------------------------------------------------------------------------------------DOLLARS 
The endorsement of this check constitutes a receipt for payment of account itemized below. 
To THE FIRST NATIONAL BANK, Midland, Texas. BY----------------------------------------·---­Figure 3 
for what it is in payment. This check is designed to provide a space for these notations. 
Whether this form of check is used or whether an ordi­nary check form is used, too much stress cannot be given to the importance of making notations on the check which will clearly indicate the item or items of indebtedness cov­ered by the particular check. Where no record is made of checks issued until they are returned by the bank, these notations are of particular importance. Under these cir­cumstances, they are the only evidence which may be used to show the purpose of the payment. Notations of this sort have the following advantages: 
1. 
They cause the check when indorsed to become an unques­tioned receipt for the items indicated. Many people feel that a check is always a receipt. This is only partially true. There are many court cases where checks have been given in payment of certain items and the payees have, later, brought suit for pay­ment of these items and have claimed, justly, or unjustly, that the check was in payment of other indebtedness. The ordinary form of check without notations is worthless as evidence against such a claim. 

2. 
They materially simplify the bookkeeping procedure. These notations, if made with reasonable clarity, constitute a system of cross reference to other papers, or in many instances indicate in themselves the exact manner in which the disbursement should be classified. 

3. 
Such notations assist greatly in presenting information to Income Tax auditors when they make their inspections of the records. 


Following are some examples of notations which are very generally used. 
1. 
"In payment of invoice of (date)." The value of this is entirely dependent on the invoice. When invoices are kept this is quite satisfactory. Where an invoice covers both personal and ranch expense this is probably the best notation. (Figure 10, item 4.) 

2. "On account_______________________
____.'' This notation is practically worthless unless all invoices are kept. 

3. 
"In payment of interest on (specific mortgage or specific note).'' This notation is satisfactory if the particular indebted­ness is specified. If the note is personal rather than one arising from ranch business, this fact should be shown. 

4. 
"Repairs to car (personal or ranch expense)." Care should always be used to indicate whether the expense is personal or whether it is a ranch expense. 

5. 
"Wages from (date) to (date)"-for general ranch hands. 


"Wages (cook or flunky) from (date) to (date)." All cook­ing expense should be kept separately. This notation makes this distinction clear. 
"Wages (new fence, new house, repairs to reservoir, repairs to road, cattle shipments, etc.) from (date) to (date)." When­ever labor is hired for any purpose other than the general ranch operations, this purpose should be indicated on the checks. 
6. "Feed (ranch or shipments)." All regular ranch expense and shipping expense should be separated. 
The above notations are by no means inclusive. They should, however, give the rancher an idea of the manner in which these notations should be made. Many ranchers feel that they, or the persons keeping their books, know for what the checks are given and that no other precautions are necessary. This idea is true as far as it goes. Memory is short-lived, misinterpretations are easy where others have to depend upon past information or intuition, and outsiders who will have occasion to look over the records are not par­ticularly convinced by either. 
MEMORANDUM BOOK1 
A memorandum book is valuable for many purposes. This discussion is limited to its use in connection with the accounting records. 
Nearly every rancher finds it necessary to carry some cash with him and pay some items of ranch expense in cash. Often it is not practical or possible to get a receipt for such payments. The extent of such practice varies with differ­ent individuals. Many ranchers now feel it best to give checks for practically every expenditure which amounts to more than one dollar. Others feel that they do not care to be bothered with the writing of checks. The former is un­doubtedly the better practice. Where payments, large or 
1For a complete discussion of "The Use of a Diary for Farm Ac­counts" see Farmers Bu1letin No. 782, U. S. Dept. of Agriculture. 
small, are made in cash, a careful record should be made in a memorandum book which every rancher should carry with him. Memoranda made on a loose sheet of paper or on the back of an envelope are not satisfactory. Too many notations made in this manner become obliterated or lost. 
All cash which the rancher takes from the bank, unless withdrawn for special purposes, such as payroll, should be charged to his "Personal" account. If items of ranch ex­pense are paid in cash, these amounts should be deducted from the amounts charged to the "Personal" account and charged to the proper asset or expense accounts. Only in 

FIGURE 4 
this way will proper records be maintained or will the rancher be reasonably sure of getting the credit for such deductions on his income tax statement. (Fig. 10, item 8.) 
ACCOUNT SALES 
The Account Sales, a form for which is given on page 16, shows the amount received for the cattle and the expense which the broker has charged against the amount received. 
These forms should be used as the basis for an entry in the journal which will record the total amount received by the broker as the sale price of the livestock. The expense will then be charged to the proper "Selling Expense" ac­count (Fig. 10, item 9). In this way the books will indicate the exact information about the transaction. The Account Sales should then be filed for future reference. 
DEPOSIT SLIPS 
All amounts received, regardless of how small, should be deposited in the bank. 
Deposit slips are made out each time money or checks are taken to the bank for deposit. They should also be made out when the coupons of recognized bonds are deposited with the bank for collection and when money is borrowed from the bank and credited to the borrower's account. In every instance a duplicate deposit slip should be made out showing the source of each amount which is deposited. A deposit slip is shown below illustrating how this infor­mation may be written in so as to be used for future reference. 
After the deposit has been made, the deposit slip should be filed. In many instances, the deposit slip may represent the only evidence showing the source from which funds were received. It is, therefore, an important paper in the bookkeeping procedure. This file should, therefore, be kept with great care and in case one slip becomes mislaid, a copy should be obtained from the bank. 
DEPOSITED IN 


FIRST NATIONAL BANK 
OF DENISON 
FOR
CREDIT OF_______________________J. R. Doe & Blank________________________ 
--------------------------------------------------------------------------January 10, 1929 

FIGURE 5 
BANK STATEMENTS 
Many banks which are equipped with up-to-date book­keeping machines for their customers' accounts render monthly statements. These statements are, as a rule, re­ceived with the returned checks shortly after the first of each month. Some banks send their statements at a regu­lar time during the month. That is, certain groups of statements are sent out on specific dates throughout the en­tire month. Regardless of the date upon which the state­ment is received, it and the returned checks should be turned over without delay to the person who is keeping the books. A review of the statements should then be made, and if the policy, bad though it may be, is adopted of making the en­tries from the returned checks, these entries should be made immediately. The entries should not be made, how­ever, until after the signer of the checks and the person keeping the books have gone over each check to insure a perfect understanding and so that all checks or deposits about which all details are not clearly set forth may be in­vestigated while the facts are fresh in everyone's mind. In this way, any mislaid invoices or deposit slips may be lo­cated without all the additional work involved when such matters are allowed to run for a longer time. 
INVENTORIES 
On every ranch it will be necessary to make up inven­tories for a number of different items. Some of these in­ventories are of greater importance than others. As a rule a number of inventories will be necessary if reasonably ac­curate accounting records are to be maintained. The fol­lowing outline gives a number of inventories, all or a part of which should be maintained in conjunction with each set of ranch accounts. 
1. 
Cattle Inventory.2 

2. 	
Sheep and Goat Inventories. If many sheep and goats are carried, the inventories may be kept on the forms provided, in the same manner as the Cattle Inventory. If only a small flock is maintained, an in­ventory similar to that given for horses, illustrated below, 

may 	be sufficient. 

3. 	
Horse Inventory. If a sufficient number of horses are carried on the ranch, an inventory may be maintained on the same forms and in 


2The principles and problems arising in connection with livestock inventories are discussed at some length in the section devoted to "Cattle Inventory," pages 21 to 33. 
the same manner as the cattle inventory. When a rela­tively small number of horses are kept and the changes are few, a list of these horses and their values may be made out at the end of each year. Such a list may be made up as follows: 
HORSE INVENTORY 
December 31, 19______
_. 
Horses 
Yearlings @ 
2-year-olds @ 
3-year-olds @ 
4-year-olds and over @ 

Mares 
Yearlings @ 
2-year-olds @ 
3-year-olds @ 
4-year-olds and over @ 

Stallions 
Yearlings @ 
2-year-olds @ 
3-year-olds and over @ 

Special Stock 
(Name or registered de­
scription of each animal) 

TOTAL FIGURE 6 
4. 	Feed Inventory. On many ranches a sufficient amount of feed is maintained to make its value of appreciable importance in the financial set-up. In such cases, therefore, a feed inventory should be made of the amount and the value of the feed on hand at the end of each year. Such an inventory is given in the following illustration: 
FEED INVENTORY 
December 31, 19____
___ . 
200 bu. Oats @ $ .65 $ 130.00 400 tons Hay @ 20.00 8,000.00 
TOTAL 	$8,130.00 
6. Wool and/ or Mohair Inventory. 
This will include only the wool or mohair which has been clipped. The amount on hand or in the warehouse should 
be classified according to grade. Each grade should be priced according to the current price in that locality less any selling expense. This information should be listed and totaled in the same manner as the "Feed Inventory" shown above. 
6. 	
Equipment Inventory. 
Discussed on pages 33 to 42. 


7. 	
Improvement Inventory. 
Discussed on pages 43 to 47. 


8. 	
Miscellaneous. A variety of other items may be on the ranch which should be inventoried if their value amounts to a sufficient sum. Hogs and chickens are examples of such items. Where inventories of other items are necessary, these items should be grouped into classes and listed with their unit value in such a manner that reference may easily be made at some subsequent time. 


INVENTORY OF CATTLE 
The inventory accounts are of vital importance in every set of double entry books. To avoid the necessity of count­ing the livestock and other items of value around a ranch, many ranchmen have rendered their income tax returns on a "receipts and disbursements" basis. When this method is followed, the ranchman is at a disadvantage if he sells his cattle at a fairly high price or if in some years he can not take advantage of the exemptions. 
The meeting of the income tax requirements has come to be regarded by many stockmen as the acme of bookkeeping requirements. This attitude is wrong. The accumulated records contained in a set of books are of great value to any business man. He can look back over these records and see in what years a profit has been realized and in what years there has been a loss. The records will also indicate the causes of these variations and, if studied in connection with weather records and changes in grades of stock, they will tell a rather complete story of successes or failures which may have arisen from various conditions and meth­ods. Accurate inventories, properly kept, are the keystones of every set of books. 
The method of arriving at the value of a livestock inven­tory has been misunderstood by many. To avoid confusion, the various steps will be briefly outlined. 
Making a Careful Count. 
Many stockmen maintain that a count of livestock is im­possible. An absolutely accurate count is exceedingly dif­ficult, if not impossible. Some stock is practically sure to be overlooked. Substantial accuracy, however, is possible. Absolute accuracy can seldom be obtained in taking the count of cattle, sheep, or goats, or of the stock in a grocery, hardware, millinery, or other shop. Where an honest ef­fort is made each year, the count will usually be substan­tially correct, and the slight inaccuracies will tend to offset each other from year to year. 
Certain groupings are, of course, necessary in taking an inventory. The following is a suggested classification for cattle: 
The cattle may first be classified according to general groups. The reason for this classification is that each of these groups will probably have a different range of prices. 
(1) 
Registered Herd.-Only the stock that is actually registered should be carried under this heading. Care should be used not to include stock which has come from registered herds but has not itself been registered. 

(2) 
Pure Bred Herd.-On many ranches there are a number of cattle which have come from registered stock on both sides but have not themselves been registered. Such stock is more valuable than the "grade" herd. These cattle should be classified separately unless mixed with the other herd in such a way as to be indistinguishable, in which event they should all be classified as "Grade" cattle. 

(3) 
Grade Herd.-For some years, the cattle men have been improving the quality of their herds by purchasing a better grade of bulls and some high grade heifers. Today the herds are all of relatively high grade when compared with those of previous years. The cattle regularly on the ranges, although better than a few years ago, may be car­ried under the general classification of "grade" cattle. 


Under each of these various heads, it will be necessary to make a division according to age, sex, etc., as follows: 
(1) Calves: 
Spring Brand 
Heifers 
Bulls 
Steers 
Fall 	Brand 
Heifers 
Bulls 
Steers 

(2) 	
Cows: 
Yearlings 
Two-year-olds 
Three-year-olds and over 


(3) 	
Steers: 
Yearlings 
Two-year-olds 
Three-year-olds and over 


(3) 	
Bulls: 
Yearlings 
Two-year-olds and over 



This classification, or parts of it, is commonly used by many stockmen. If sheets such as the one shown in Figure 7 are kept as a supplement to the regular books, the stock­man will at all times have a record showing just what grades and classes of cattle are on the ranch. When these sheets are totaled, a record is available which shows the value of the herd and also what should be found at the time of the round-up. Any marked variation from these figures will at once indicate that there is either an error or that there has been an unusual loss from death or theft. 
Recording the Results of the Count. 
All men are "more or less" subject to a certain amount of forgetfulness, and most men belong to the "more" class. As a consequence, a careful record must be maintained of the count made at each round-up if the count is to be of any very great value. Therefore, the wagon boss, ranch fore­man, or owner-whoever has the responsibility of keeping the tally on the range and at the corrals-must use care to see that each man does his part correctly. It also means that a written notation should be made at the time each group is counted. Many errors occur because men try to carry these figures in their minds throughout a busy day or even for two or three days until they get back to the ranch house. One large outfit has each wagon boss send in a daily report. Whether this care is necessary is a question for each stockman to decide for himself. A notebook should certainly be kept and the figures entered in it as each bunch of cattle is gathered and counted and as each bunch of calves is released from the branding corral. 
Handling the Figures on the "Tally'' or Inventory Sheet. 
The "Tally Sheet" may at first seem complicated. It is, however, a much easier and more simplified system than the one many stockmen are now using. In addition, it will make possible a record which may be referred to at any time of the year. The "T'ally Sheet" is so organized that the work is divided into four main groups of columns which correspond to the periods of the year. When the work falls in one of these groups, the others may be disregarded. In each of the groups there are columns for figures which may not be used during any particular year or portion of a year. If they are not used, it should not be a matter of concern. The columns are placed so as to be available when needed. To explain the detail of the "Tally Sheet," it will be necessary to begin at the first of the year. 
(1) The number of head of stock on hand on January 1 
may be determined (first) by making an actual count at that time. (Second) the count of the last round-up may be used by adding to it the number purchased plus any strays which may have been branded; from this total is deducted the number which may have been sold plus any other losses that may have been reported. Whatever method is used, the figures showing the number of head on hand at the first of the year should be as accurate as it is possible to make them, both from the standpoint of totals and from the number in each class. This information hav­ing been obtained, the figures may be placed in Column No. 1. 
L I v t s T 0 c I( I II v E. N r 0 R y 

FIGURE 7 
(2) Value per head.-Much controversy has arisen in regard to the proper method of valuing livestock on the ran~. Income tax regulations allow the stockmen the option of using the "farm price method" which provides for the valuation of inventories at "market price less cost of marketing (Art. 1616) ." The regulations also state that 
The Act provides two tests to which each inventory must conform: 
(1) It must conform as nearly as may be to the best account­ing practise in the trade or business, and (2) it must clearly reflect the income (Art. 1612). 
It is the author's opinion that the great majority of stock­men have been doing their best to render a correct return. The basis of valuing inventories has, however, been the item most severely criticized. The main point of conten­tion arises from the question of what is a fair market price. Many inspectors maintain that the published stockyard prices are the established records from which they must check and that these prices should at all times be used. The regulations give the following definition of a market price. 
Under ordinary circumstances and for normal goods in an in­ventory, "market" means the current bid pric.e prevailing at.the date of the inventory for the particular merchandise in the vol­ume which is usually purchased by the taxpayer. . . . Where 
no open market exists ... the taxpayer must use such evidence of a fair market price at the date or dates nearest the inventory as may be available, such as specific purchases or sales by the taxpayer or others in reasonable volume and made in good faith ... (Art. 1614). 
The following summary may be made from the foregoing quotations: 
(1) 	
The method of valuing must conform to good accounting practise and it must clearly reflect the income. 

(2) 	
The farmer or ranchman is allowed to use the market price, less the cost of marketing, as the basis for his inven­tory valuations. 

(3) 	
The market price must be the current bid price for the particular merchandise in similar volumes or the taxpayer must use evidence of a fair market price arrived at in good faith. 


Many inspectors have no doubt been quite justified in making the demand that the published stockyard prices be used as a basis for livestock valuations. Frequently, there has been no other tangible evidence available to them. The stockyard prices, however, are quoted in cents per pound for each kind of stock. As a consequence, it is necessary to determine the weight and stockyard classification of each animal before the figures of pound values can be used. In addition to this, it is necessary to determine the shrink­age which would result from shipping and the cost of handling and feeding during the shipping period. Each of these factors represents a problem which is practically, if not absolutely, impossible to solve correctly. Estimates with the possibility of a large percentage of error are there­fore inevitable. 
In the great majority of cases with which the author has come in contact, the ranchmen and accountants in ranch districts maintain that the "range price" is far more ac­curate than a price based on stockyard prices with the ad­justments necessary to meet local conditions. In many in­stances, the "range prices" have been approved by the agents of the Internal Revenue Department. The "range prices" represent the value of the stock on the hoof, in the territory where it is situated-in other words, the price that one ranchman would pay to another for stock of the same grade and in the same condition. It is the price, if fairly determined, at which the "particular goods" would sell. 
A tremendous number of transfers of livestock take place between different ranchmen, feeders, etc. Many people estimate that the number of head transferred in this way greatly exceeds the number of head passing through the stockyards. It would seem, therefore, that evidence of such transfers or evidence showing at what price the stock might have been sold would give a more accurate valuation figure, when available, than the stockyard price with all of the uncertainty involved. In the "range price," these uncer­tainties have been shrewdly taken into consideration and weighed by the very people who are best fitted to judge the value of the animals in their present location and condition. Under these circumstances, the price 
(1) 	
Will be in accord with good accounting practise and will, as clearly as possible, reflect the income. 

(2) 	
Will be in conformity with the market valuation allowed to farmers. 

(3) 	
Will be a fair market price arrived at in good faith, if it 


can be established that it was arrived at in good faith. 
The author, after having talked with many ranchmen, is convinced that the great majority are trying to render as fair and accurate a return as it is possible for them to make. In every group of society there are, however, exceptions. In the ranks of Internal Revenue inspectors and ranchmen, there are always those few who would rather be "clever" than "square" and above-board. The ranchman should, therefore, be prepared to meet that type of inspector with adequate evidence of his sincerity of purpose in these mat­ters. On the other hand, that large majority of fair-minded inspectors who are trying to carry on their work in such a way as to be fair to all concerned have a right to expect that reasonable evidence be presented in a matter as im­portant as this. How can such evidence be presented to the inspector when he arrives to look over the statements and accounts one or more years after the statements have been rendered? A very definite way would be for each ranchman to have two or more of his neighbors, who are probably almost as familiar with his stock as with their own, sign an affidavit before a notary giving information regarding such transfers of stock in that territory as they may be familiar with and their best judgment regarding the value of each class of the herd under consideration. A copy of this affidavit may then be filed with the retained copy of the tax statement. This procedure may seem to involve extra trouble for the stockman. It does. It is, however, much less trouble than carrying on an argument with the Department for a long period with the usual loss of time and cost of accounting and legal fees. It is also 
much less expensive than paying a large additional assess­ment. 
From the standpoint of the inspector, this procedure is preferable, as he may justifiably have some question re­garding certain valuation figures. It is at times his duty to question. He should not be a respector of persons when these questions arise. However, when the figures are sup­ported by the sworn statements of representative people who knew the condition of the stock at the time and ex­pressed what in their best judgment was a fair valuation, the inspector may be reasonably sure that the figures are satisfactory, provided, of course, there is no evidence of collusion. Valuations at range prices when supported by affidavits should, it would seem, be satisfactory both from the standpoint of the Government and of the owner who wishes to know as accurately as possible just where he stands in a financial way. Only when accurate inventory valuations are used will it be possible to arrive at a proper statement of income or of financial condition. 
(3) Total value of herd.-The total value of the herd is determined by multiplying the figures in Column No. 1 of the "Tally Sheet" by the figures in Column No. 2. When the results of these multiplications are placed in Column No. 3, the total value of each class of stock will be avail­able. The total of this column determines the value of the entire herd. This total may now be entered in each "Gen­eral" column of the journal. At the time the books are opened the figure in the left-hand column will be transferred to the left side of the "Inventory" account of the ledger and the figure in the right-hand column will be transferred to the right side of the "Capital" account. (For a detailed ex­planation of the entries which should be made at the end of the year, see pages 180 to 189.) The rest of the "Tally 
Sheet" is divided into three groups which are practically identical. An explanation of the items which should be placed in the first group (columns No. 4 to 14) will suffic~ for the entire sheet. 
The purpose of the "Tally Sheet" is to have a record of the number of head of each class of stock that should be on hand at the time of each round-up as well as at the end of the year. When this information is available, "overs" and "shorts" may be carefully checked. If cattle are kept in various pastures, the number and kind in each pasture may be kept separately. In this way, unusual losses resulting from carelessness, theft, or bad range conditions will be brought definitely to the owner's attention. 
To find the number of head which should be on hand at any given time, it is necessary only to add to the last count all additions to the herd and subtract from that total the cattle that have been shipped or that have died. 
Steer yearlings may be taken as an illustration: 
Add: 
Number on hand, January, 19­ 7 head  
Number purchased Number of calves which have become  72 head  
yearlings  112 head  
191 head  
Deduct:  
Number sold  10 head  
Number which should be on hand at  
time of round-up  181 head  

To work out the computation given above from miscel­laneous figures for each class of cattle would be difficult and might allow a considerable amount of error to creep in. Columns No. 4 to No. 30 are arranged so that the recording and subsequent calculations may be carried on in an orderly fashion. The following explanation describes the figures that should be placed in these columns of the "Tally Sheet." 
Column No. 4.-Enter in this column all purchases of cattle. When cows with calves are purchased, the calves should be classified separately if they are branded at the time they are received. If they are to go unbranded until the next round-up, it will be necessary to record only the cows, for the calves will be counted in the next round-up. 
The column "Purchase Cost Per Head" is inserted for purely memorandum purposes. The figures are not used in computing the total. The cost per head (see Figure 7) should be entered so that it will be available for reference. 
Column No. 5.-Just before each round-up and at the end of the year, it will be necessary to bring together the figures which have been entered in the various columns during the intervening period. The first step of this process is to add to the number of each class of stock on hand at the first of the period (Column No. 1) the purchases for the next period (Column No. 4). The totals obtained in this man­ner are placed in Column No. 5. 
Column No. 6.-Deductions from the herd must also be recorded. The sales are kept in a separate column so that they may be checked against the other records of sales to prove the accuracy of the figures or to help in locating such errors as may occur. Care should be used when cows with calves are sold to include in the count any of the calves which may have been branded and consequently counted and recorded on the "Tally Sheet" at the time of branding. Similar care should be used to avoid counting any un­branded calves. 
Column No. 7.-The totals of all cattle on hand at the beginning of the year, plus purchases, are shown in Column No. 5. From these totals must be deducted the number of cattle sold. The results of these subtractions will be placed in Column No. 7. 
Column No. 8.-Each year the cattle advance in age. As a consequence, many must be "moved-up" from one classifi­cation to the next. The number of calves which were brought onto this sheet at the time of the last spring round­up as "Spring Round-up" have now become yearlings. The figure shown on the first line in Column No. 7 will, there­fore, be moved down to the line for cow yearlings in Column No. 8. The bulls and steers are moved down in the same manner. The semi-annual division is made only in the case of calves. Each ranch should adopt a regular policy of moving up the other stock at either the fall or spring round-up. In the illustration, all yearlings and two-year­olds are moved up at the time of the fall round-up. Care should be taken to cross out the old figures when they are transferred. This will avoid confusion when the figures are brought forward to Column No. 9. 
Column No. 9.-When the move-up has been completed, the new figures will appear in Column No. 8, and the old figures in Column No. 7 will have been crossed out. The totals of Columns No. 7 and No. 8 should now be entered in Column No. 9. This represents the number of cattle that should be on hand if all purchases and sales have been ac­curately recorded. It might be well to state that although inventory methods similar to this are used in many thou­sands of businesses throughout the United States annually, the inventory will seldom, if ever, balance out exactly when the actual count is made. At first the a1n0unt of error ("over" and "short") will be much greater than it will be 
later~ if reasonable attention and effort are devoted to the maintenance of this record. Practically all businesses that have adopted up-to-date and money-saving inventory meth­ods have had this experience. 
Column No. 10.-In this column will be placed the sum­marized figures showing the number of each class of stock actually counted in the round-up and will include all new brandings. The accuracy of the figures placed in this col­umn will, of course, depend upon how carefully the count is made and the results transmitted to the "Inventory" or "Tally." 
Columns No. 11, No. 12, No. 13, and No. 14.-In many businesses requiring a much smaller investment than that of cattle raising, it has been found well worth while to hire extra help to take care of the check on inventory. When the variations between what is supposed to be on hand and what is actually on hand are brought to the owner's and manager's attention, something is usually done to reduce the error which amounts ordinarily to a loss. The figurP3 placed in Column No. 11 represent the number of head of livestock by which the count exceeds the number called for by the "Tally Sheet." This discrepancy may arise from 
(1)  The counting of strays,  
(2)  Error in last count, and  
(3)  Wrong classification.  

These should be given careful attention, particularly if they are large. If it is worth while to have a round-up with the expense involved, it is worth while to have the count made correctly. When the error falls in the third class, it will usually be offset by a shortage in one of the other groups. Column No. 12 shows the shortages in each classification. Particularly at first, these will be somewhat greater than the "overs." Neglect and oversight on the part of the range riders, thievery, etc. will cause this discrepancy. When it is large, there is undoubtedly something wrong, and it should receive careful attention. Column No. 13 is reserved for the figures which indicate the percentage of error. With some variation in the size of the herds, a count might be made which would be relatively more ac­curate and still show a larger number of "over" or "short" items. In column No. 14 should be placed the value of the "overs" and "shorts." This will make it possible to com­pare these losses from round-up to round-up. 
Similar columns are included for the fall round-up; extra columns are provided for the changes between the fall round-up and the end of the year. Column No. 27 is for "strays" branded after the round-up. Strays are few and at other times of the year may be picked up and counted as a part of the last inventory. If overlooked, they should show up as "overs" at round-up time. During this period at the end of the year, especial care should be taken to record all such items. For this reason, an extra column is provided. Column No. 30 is the same as Columns No. 9 and No. 20. It shows the number of head on hand at the end of the year. These figures will be transferred to Column No. 1 of the sheet for the new year and the value of the herd will then be determined as explained in the discussion about Columns No. 2 and No. 3. 
Ordinarily, entries affecting the "Cattle Inventory" ac­count in the ledger will be made only at the end of the year. 
At that time the work will be divided into two steps, first, the value of the herd or herds recorded in the "Cattle In­ventory" account at the beginning of the year will be en­tered in both the right and left hand "General" columns of the journal. The figure from the left hand column will be carried to the left side of the "Profit and Loss" account. The figure from the right hand column will be entered on the right side of the "Inventory" account thus "balancing" that account. The second step will bring into the books the value of the cattle on hand at the beginning of the new year and is similar to the entries shown in Figure 27. The total of Column No. 3 of the "Cattle Inventory" sheet or sheets will be recorded on both the right and left hand "General" columns of the journal. The figure in the left hand column will be entered in the "Cattle Inventory" ac­count causing that account to have a "balance" equal to the value of the cattle on hand at the first of the new year. The figure in the right hand column will be carried to the right side of the "Profit and Loss" account. 
INVENTORY OF EQUIPMENT 
The equipment of a ranch consists of saddles, bridles, small tools, plows, mowing machines, wagons, trucks, cars (only those used for ranch business), and all similar articles that would not be included in the sale of the ranch real estate. 
The records of the items of equipment are maintained in much the same manner as the record of livestock. A ledger account is used to record the total value and the changes in value of this type of items. It will not show any of the details. All details regarding the items will be shown in the "Equipment Inventory" sheets. At the end of each year the values indicated by the inventory sheet should agree with the balance of the "Equipment" account. The follow­ing discussion of equipment transactions refers primarily to records which will be made on the "Equipment Inven­tory" sheet. The manner in which these transactions will be handled in the ledger is explained on pages 80 to 85. 
Two problems of classification arise in regard to the items whose value should be included in the equipment account, and therefore recorded on the "Equipment Inventory" sheet : First, purchasing new articles, and second, dis­tinguishing between repairs and improvements: 
In purchasing items such as a strap, or some new ropes, or a new doubletree, or a special body for a truck or wagon, should these items be considered as expense or should theybe considered additions to the ranch equipment? Before giving any rules by which one may be guided, it might be well to state·that, in matters of this kind, a large degree of common or "horse" sense must prevail. The general rule is that all expenditures for items of equipment, the life of which will be greater than one year, should be charged to the "Equipment" account. This r.ule must, however, be tempered with judgment. A new strap, say a check-rein for a harness, may last for several years and be quite neces­sary particularly if the harness is used on a certain horse. The addition of this check-rein does not, however, add any material value to the harness. It may be used for a long time, or it may soon be discarded. Such items should ob­viously be charged to expense ; in this event, no entry would be made in the "Equipment" records. In the same way, a new pair of tugs would ordinarily be charged to "Repairs," and' a new set of tires or a replaced headlight to "Automo­bile Expense." In contrast to these ite~s may be taken expenditures such as an extra set of doubletrees, a new bumper or shock absorbers for a car or truck which was not previously equipped with these accessories, an ex­tra body for a truck or wagon, etc., which obviously in­crease the value of the property and should be included in the "equipment" records. 
The second problem arises at the time repairs are made upon various articles of equipment. Should the cost of overhauling a truck or of replacing a damaged axle be charged to the "Equipment" account or to an expense ac­count? The question here is to what extent do the repairs increase the carrying value of the article prior to the time 
the repair work became necessary. Let us consider the articles just mentioned: A truck is purchased and is, let it be assumed, estimated to last for five years. Any piece of machinery which is to last throughout its normal life period must have a certain amount of repair. Overhauling of trucks and machines is a part of the expense necessary to make the machinery last. Certain minor parts will no doubt have to be replaced. Replacements due to normal wear and tear are necessary so that the value of the truck will not fall below its carrying value. In contrast to these expenditures one may take the overhauling and replacing of parts of a wagon, a truck, a mowing machine, etc., the result of which is definitely to prolong its life beyond the original estimate used as a basis for figuring depreciation. 
Under these circumstances, such portions of the cost as do actually prolong the life of the equipment in contrast with those that are necessary to maintain its original life-period should be charged to the "Equipment" account with a cor­responding entry on the "Equipment Inventory" sheet. 
Equipment, like livestock, must be inventoried before a set of books can be properly opened. Taking an inventory is not a difficult undertaking if it is approached systematic­ally. It is generally recognized by those who have had considerable experience in taking inventories, regardless of the line of business, that the most important step in the process is proper planning before anything is done toward making the actual count. The following outline is given as a very general suggestion of the manner in which an in­ventory of equipment may successfully be taken: 
(1) 	
Make a list of all barns, and sh<:!ds in which equipment is stored. 

(2) 	
Make a careful search of each field, barn, corral, or shed not included in the list mentioned in (1) and bring all equipment to the places that are listed and have it arranged in an orderly manner. Do not attempt to count this and that out in one field or another. Such practices invariably cause some items to be omitted and others to be counted twice. Bring everything to designated places and make the count there. To the uninitiated, this care may seem to be 


a lot of unnecessary work. If it is worth while for manu­facturing plants, railroads, and contracting companies, which have vast quantities of equipment, it is surely worth while for a ranchman to get his equipment together with equal care. The amount of trouble and expense involved is small when compared with that of the larger organizations of business. 
(3) 	
So far as possible, stop all other activities while the inven­tory is being taken. This step will avoid removal of equip­ment from the places where it may have been stored for inventory purposes. 

(
4) Make the actual count, checking off each place on the list as the count is made. If two people are making the count, better results will be obtained by dividing the work, one can list the items while the other does the counting. If there is more than one person available for counting, each should clearly understand exactly what portions he is to count so as to avoid overlapping. 

(5) 	
Classify the items on the various sheets upon which the count was recorded; thus, articles of harness, saddles, plows, wagons, etc., may have been stored in several different barns. They will consequently appear on as many lists. The items of these sheets should be summarized and then recorded on the "Equipment Inventory" sheet. 


When this or some similar method is followed, a fairly accurate inventory will be acquired. A check of this kind should be made each year and it will prove to be time very advantageously spent if the owner or manager will himself supervise each step, in that way insuring accuracy and also keeping himself informed as to the conditions of many items which would probably otherwise escape his notice for long periods of time, possibly years. 
Handling the Figures on the Equipment Inventory Sheet. 
When the inventory items have been properly arranged (see Figure 8), the names of the articles and the figures should be placed upon the "Equipment Inventory" sheet. It may at times be necessary to list each item on this sheet. At other times, it will be more practical to use summary figures. Thus, there may be two or three different makes of automobiles, such as Ford, Dodge, and Packard. Each of these would probably represent a considerable amount 
EQUIP/1ENT !NVtNTORY 

FIGURE 8 
of investment and should consequently be listed separately if they are all used for ranch business. On the other hand, there may be several items of no great value, such as sev­eral sets of harness acquired at about the same time. These may be thrown together and given an average price and an average purchase date. This method will give approxi­mately the same results as if each item were listed sep­arately. 
In many instances it will be impossible to determine the cost or purchase date of items which have been on the ranch for some time. In that event, it is necessary to appraise the present value of the items. Where the inventories run 
to large amounts, it would be a good plan to get the judg­
ment of one or two other persons regarding these ap­
praised values and have them sign a list of these items. 
This precaution may avoid later difficulties with tax in­
spectors. When values have been determined and the rec­
ords are complete, it is relatively easy to keep the record 
in proper shape. 
All items should be priced at their original cost or their value on March 1, 1913, the basis adopted by the Internal Revenue Department. It is improbable that many impor­tant items of equipment from the standpoint of large value will be found which were purchased before March 1, 1913. In the majority of instances, we may say then that "cost" will be the prevailing figure. The term cost includes several things: 
1. 
The cost of selecting and purchasing.-At times, a special trip will be made to see some machine or other item of equipment in actual use before deciding on its purchase. If the inspection satisfied the stockman, or his representa­tive, that the article under consideration is not feasible, the cost of the trip including any wages paid to others would be charged to "Miscellaneous Expense." If the trip con­vinced the stockman that he should make the purchase, the cost of the trip would be a part of the cost of the item purchased. 

2. 
Invoice price.-This is the price paid the seller. 

3. 
Freight.-This includes any cost of transportation which had to be paid in addition to the price paid the seller. 

4. 
Original cost of getting the equipment ready to op­erate.-Often machinery or other items are received in a "knocked down" condition. It may take an appreciable amount of time to set these up in shape to operate. The amount paid for this time and for any tools or other articles required to set up the machine is a part of the cost. 


From these foregoing points, the following rule may be developed, namely: 
The amount which should finally be recorded on the inventory sheet and on the books as the cost of any item of equipment is the cost of the item at the place where it is to be used and in a proper condition to be used. 
Depreciation 
To figure depreciation, it is necessary to have a starting point. Thus, if an automobile is expected to last for five years, the date upon which the car was purchased must be determined in order to find its present age and consequently its present value. 
On pages 173 to 175 are schedules of depreciation rates taken from various sources. These rates are not positive or fixed. They are representative figures which have been worked up by different authorities. It is not to the ad­vantage of the Government or the stockman to have false rates carried on a set of books. If a rate which is too high is used, expenses will be increased for a few years and then the total cost will have been written off. As a consequence, during the remaining life of the particular piece of equip­ment no depreciation can be charged. On the other hand, if the rate is too low, much of the cost of the equipment will remain on the books when the article itself is of no further use, and as a consequence a large charge will have to be made the last year. There are no advantages in using any but the most accurate rates of depreciation that are available. The use of depreciation rates which have been determined by careful study assists the stockman in having a much more accurate idea of his exact financial standing. 
Accounting Procedure for Livestock Ranches 39 
It also helps both the stoclanan and the Government by avoiding questionable items, adjustments, and amended returns. 
Every ranch owner or operator should give this question careful thought. Using such published depreciation rates as are available, he should estimate what the probable life of each item of equipment is and then work up his deprecia­tion figures at that rate. The following explanation of the Depreciation columns on the "Equipment Inventory" sheet shows the procedure to be followed: 
Estimated Life. 
A notation is made in this column showing the estimated life of each item of equipment. This is given in terms of years beginning with the date the item was acquired. 
Rate. 
The rate or per cent of cost which is to be written off each year will depend upon the estimated life of each item of equipment, thus: Assume that a wagon is purch~sed in 1922 for $100. The estimated life of this wagon is ten years. Each year of operation, then, will bear the cost of one-tenth of the value of the wagon. Consequently, the rate of depreciation would be ten per cent ($100=100%; there­fore 100%+10=10%). The cost of the asset is always equal to 100% ; 100% is then divided by the number of years which represents the estimated life of the particular asset. Ifthe wagon had an estimated life of only five years, the rate would be twenty per cent (100% + 5 = 20%). If the estimated life were 15 years, the rate would be 6 2/3% (100% + 15 = 6.666%). 
Amount. 
The amount of depreciation during each year is deter­mined by multiplying the cost by the rate. Thus in the previous illustration, if the rate were ten per cent, the "Amount" would be $10.00 ($100 X .10 = $10). If it were twenty per cent it would be $20.00 ($100 X .20 == $20). 
Had the wagon cost $140 with an estimated life of 15 years the annual depreciation would be $9.33 ($140X.0667= $9.33). 
Age When Entered. 
In many instances items will be brought into the Inven­tory sheet after several years of use. In such cases, the number of years which these items have been in use should be recorded in the proper column. 
Total Accumulated Depreciation. 
The total amount of depreciation which has been charged off during the previous years should be entered in the col­umn for Total Accumulated Depreciation. This amount should agree with the amount determined by multiplying the number of years shown in the "Age when Entered" column by the rate and then multiplying this product by the cost; thus, if an item cost $800, and had an estimated life of ten years (Depreciation Rate 10%) and had been used six years when the Inventory sheets were put in use, the computation would be as follows : 
Rate ------------------------------------------------------------------lOo/c
Age when entered______________
_____________________ 
6 
Accumulated depreciation ----------------------------60% 
Cost --------------------------------------------------------$800

Percent accumulated depreciation_
_
__________________________ 
.60 
Amount Accumulated Depreciation___________
_________
___ $480 
The amount of $480 would then be entered in this column. The difference ($320) between it and the cost would be entered in column showing the "Carrying Value when En­tered." 
Carrying Value When Entered. 
When the Inventory sheets are first adopted the items will be recorded in the manner explained in the preceding paragraphs. The present value of each item or group of items will then be entered in this column. To illustrate: 
if the books were opened on January 1, 1930, and the wagon, costing $100 and with an estimated life of ten years, had been purchased early in 1926, the following information would be recorded : 
Column Entry 
Date acquired_______________
________
_______________________ 
1926 Cost --------------------------------------------------------------$100.00
Estimated life____ 
_
____________________
______
______________ 
Ten years Rate ---------------------------------------------------------10 per cent Amount -------------------------------------$10.00
Age when entered_ 
_____
______ 
_
___ 
__ 
_
______________ Four Years Total accumulated depreciation_____
__ _
_
__
___ $40.00 Carrying Value (1930) --------------------------$60.00 
At the close of each subsequent year the carrying value of this piece of equipment would be reduced by $10. This amount would be entered under "Annual Charges to Depre­ciation" and in the particular column devoted to that year. 
Many articles of equipment will be lost, sold, or become useless each year. It is necessary therefore that the value of these items be eliminated from the records. When this situation arises, either of two conditions may prevail. Each will be explained and illustrated. 
1. A certain amount of the value of the article is still carried on the books, and it should then be written off so that the "Equipment Inventory" record and the "Equip­ment" account will be cleared of this amount. The wagon used in a previous illustration was brought onto the record with a carrying value of $60. If this wagon had been wrecked, lost, stolen, or for some reason had become un­usuable during the following year, it would have been neces­sary to eliminate the $60 from both the Inventory sheet and the books. On the Inventory sheet this item would have a red line run through it and an explanation placed in the space provided. The journal entry is illustrated on line 6 in Figure 15. If this wagon had been sold at this time, the same entry would be made on the Inventory sheet. It would make no difference whether the sale were made for more or less than $60; the purpose of the inventory sheet is to 
show the present carrying value of the usuable equipment which is actually a part of the ranch property. Whenever an article of equipment ceases to be a part of the ranch property or becomes useless, the value at which it was car­ried should be eliminated from the Inventory sheet, a proper explanation being made. For illustration of the journal entries required when equipment is destroyed or sold at a profit or loss, see page 82. 
2. An article which has become lost or useless or is sold, but which, prior to this time, has outlived its estimated life, has eliminated itself from the list of articles having a value which is carried in the accounts. It is not uncom­mon for articles to have a useful life longer than the origi­nal estimate. If the wagon previously discussed had continued to be serviceable for six more years, the entire cost would have been written off. If after that time the wagon was still usable and later was sold or destroyed no record would be necessary on the Inventory sheet unless an adjustment had been made. 
When articles are traded, it is necessary to make a double entry on the "Equipment Inventory" sheet, first to take the value of the article "traded in" off the Inventory record, and second to bring on to the record the value of the new article. Clearing the sheet of the value of the old article will be handled in the manner just explained. The second step may at times cause some question. The rule is that each article listed on the Inventory sheet should be brought on at cost. Assume that the wagon used in the previous illustrations had been used for two more years. It would then have a carrying value of $40. If at this time a new wagon were purchased for $125 and the old wagon traded in for $50 the $10 excess between the carrying value and the amount realized would not be considered a decrease in the cost of the new wagon. The $40 would be crossed off as previously explained and the $125 entered in the "Cost" column, cross references being made between the two lines. 
(See Figure 15 for journal entries covering the purchase of a new wagon under various conditions.) 
INVENTORY OF IMPROVEMENTS 
The columns on the "Improvement Inventory" sheet ex­actly correspond with those on the "Equipment Inventory" sheet; therefore, the discussion will not be taken up column by column in this section. This section will be devoted to a more general discussion of problems which may arise concerning this class of assets. Many of the points dis­cussed are not applicable to improvements alone. The underlying principles are the same for all assets. 
Houses, barns, sheds, fences, windmills, tanks, pipe lines, etc., are the items which may be classed as "Improvements." They can be easily distinguished from the items which should be considered as "Equipment" by their lack of mov­ability. In other words if the ranch real estate were sold the "Improvements" would be included in the sale, whereas, "Equipment" would not unless it was specifically mentioned that it was to be included. 
Ranch improvements represent a large portion of the stockman's investment, and should be given careful atten­tion when opening a set of books. An inventory should be taken of the improvements with the same care that is taken with the equipment inventory. The listing and counting of these items will not, as a rule, involve as much difficulty as the listing and counting of the equipment items. Im­provements are usually larger, more evident, and conse­quently less easily overlooked. Care, however, must be used. 
The various classifications must, if satisfactory results are to be obtained, be carefully made and not allowed to overlap. For instance, adobe barns and frame barns should not be listed just as barns, but should be classified sepa­rately. Three-wire and four-wire fences should not be thrown together and listed as so many miles of fence, the number of miles of each should be shown as separate items. Such a listing will require some care but, when once made, will be very easy to maintain thereafter. 
The cost or value on March 1, 1913, should be carefully considered. It may be very difficult to determine what was the cost or the value of some improvements that far back; in that event, as in the case of items of equipment, a careful survey should be made of the present value of the items listed. When the cost figures are used they should include all of the costs chargeable to the particular item. Thus: architects fees and expenses, freight and hauling expenses on materials, the cost of piping water, sewerage systems, etc., are all a part of the cost of a house. In the same way the labor spent in salvaging (tearing down, pulling the nails, etc.) of old lumber which is to be used on a new build­ing, as well the cost of new material, is a part of the cost of the new building. Time of employees spent in grading, excavating, etc., should also be included as a part of the cost of new buildings or improvements to old buildings. 
When the improvements have been listed on the "Im­provement Inventory Sheet" and their cost or value March 1, 1913 has been placed in the "Cost" column, the proper depreciation rates should be applied to the various items upon which costs can be determined. Reference may be made to pages 173 to 175 for a list of depreciation rates suggested by various authorities. In each instance, the stock­man should consider carefully whether these rates apply to his particular case, and, when any question arises, he should consult the public accountant who keeps or audits his books. The rate at which improvements are to be depreciated should be placed on the "Inventory" sheet at this time re­gardless of what value is used, i.e., Cost, Value March 1, 1913, or Present Value. Care should be used, however, to avoid confusion of date and depreciation rates. Thus if a house costing $10,000 was built in 1910 and the depreciation rate was 5%, the house would have passed through 17 years of its estimated life by the end of 1927. The present value on January 1, 1928, based on cost, would be $1,500. As­sume though, that no records of the original cost or date of construction were available and that the house was esti­
mated on January 1, 1928, to have a value of $1,500. The depreciation rate on this $1,500 would very obviously be 
1!1fROVE/1ENT !NrtNTORY 

FIGURE 9 
something greater than the 5%, the rate suggested for sub­stantial wooden buildings. If the original estimates were correct it would be 33 1/3% as there would only be some three years of useful life left in the building. Therefore, when estimates are made on the basis of present value, care should be used to estimate the length of time that the par­ticular asset will be useful, and not to base future estimates of depreciation on the percentages given for new construc­tion. Both the present value and the depreciation rate will be affected by this time factor. If the property has been kept in good repair, the remaining period of useful life and consequently the present value may be relatively high. If repairs have not been kept up, it will probably be relatively low. When depreciation rates are used which vary from the ordinary percentage figures usually adopted for the particular asset under consideration, a statement should be placed on the "Inventory" sheet explaining the condi­tions which justify this rate. This statement should also be appended to the income tax return so as to avoid the questions which may arise in the Income Tax Department. In this connection the following transcripts are inserted: 
Article 165, Regulations 69, reads in part as follows: 
"The capital sum to be replaced should be charged off over the useful life of the property, either in equal annual installments or in accordance with any other recognized trade practice, such as an apportionment of the capital sum over units of production. Whatever plan or method of apportionment is adopted must be reasonable and must have due regard to operating conditions dur­ing the taxable period. While the burden of proof must rest upon the taxpayer to sustain the deduction taken by him, such ded1U>­tions must not be disallowed unless shown by clear and convincing evidence to be unreasonable. The reasonableness of any claim for depreciation shall be determined upon the conditions known to exist at the end of the period for which the return is nutde." 
Care should also be used to see that the rates which are set up at the time a new set of books is opened do not con­flict with the rates which have been reported on previous returns. The attitude of the Internal Revenue Department on such matters is given in Internal Revenue Bulletin No. 31, Volume VI, page 3. 
... it should be borne in mind that a taxpayer's plan for taking deductions for depreciation should be reasonably consistent and that a taxpayer will not be permitted, by a revision of such plan, to take deductions in a given taxable year which should have been taken in prior taxable years. (Article 161, Regulations 69; Appeal of Atlantic Carton Corporation, 2 B.T.A., 380.) 
When additions or improvements are made on any of the items listed on the "Inventory Sheet" or when a new im­provement is added, the total cost should be placed in the Cost column. Care must be used to distinguish clearly be­tween additions, improvements, and repairs. This problem is discussed more fully under the subject of "Repairs," page 
171. It is always a good plan to make a notation in the space provided for "Remarks" of just what was done. 
Certain improvements either will become useless or ob­solete or may be destroyed by fire, wind, or flood. Under these circumstances the value at which they are carried should be eliminated from the records. When a portion of the real estate is sold, the improvements, such as corrals, buildings, windmills, tanks, etc., which go with the sale must also be eliminated. An explanation of the reason for writing them off should be made in the "Remarks" column. A little care along these lines may save considerable expense and trouble at the time Income Tax returns are reviewed and also be of much convenience when it is desired to determine the exact cost of the remaining property, for sale or Inher­itance Tax purposes. 
As in the case of "Equipment," many stockmen are losing each year a considerable amount of allowable deductions on their Income Tax returns because they are disregarding depreciation. The amounts of the annual depreciation should be figured on the rates which have been entered in the "Rate" column. 
In making these entries for improvements, which have increased in value because of additional expenditure, the problem of estimated life should again be considered. Does the expenditure increase the life of the asset? Thus: a house with an estimated life of twenty years was built for the foreman in 1915 at a cost of $2,500. By 1925 $1,250 would have been charged to depreciation and the present value of the house would be one-half of its original cost, or $1,250. At this time a new room and some additional plumbing fixtures are added at a cost of $750. This $750 is, of course, added to the value of the house bringing it up to $2,000. Neither the new room nor the plumbing fixtures have any effect upon the useful life of the house. They are placed there for the convenience of the occupants during the remaining ten years. As a consequence, the amount of the annual depreciation on this building will be increased from $125 per year (5% on $2,500) to $200 (10% on $2,000). This amount will write off the present value of the asset as it now stands during its useful life. This change does not affect the amount which is written off on the original house, it simply adds to that amount the neces­
sary depreciation on the new additions. 
5% annual depreciation on $2,500.00 (20 year life) ___ $125.00 10% annual depreciation on $750.00 (10 year life)_______ 75.00 
$200.00 
If, on the other hand, the $750 had been spent for im­provements which actually lengthened the life of the par­ticular asset a corresponding adjustment should be made. Under these circumstances the amount of the annual depre­ciation charge would be reduced. 

THE JOURNAL 

When the original evidences of the various business transactions have been assembled at the place where book­keeping entries are to be made, the entries will first be made in the Journal. Various types and kinds of journals may be used with entirely satisfactory results. The combined Cash and General Journal shown in Figure 10 seems adaptable to the accounting requirements of most ranches. 
An effort has been made in designing the journal to re­duce labor to a minimum. In order to do this all columns which would seem to have frequent entries have been placed close to the left side of the page. Those columns in which entries will be somewhat less frequent have been placed farther to the right side of the journal. 
The columns in the Journal are of two kinds : 
1. 
Those which receive figures for a particular account. All accounts to which frequent entries are made are given a special column if the entries are normally made on either the right or left side of the account, entries being infrequent on the other side. If, however, frequent entries are made on both sides of the account then two columns will be provided for the particular account. Where only one column is provided for an account, the total of that column will be carried to the left (debit), or the right (credit) side of the account as indicated in the heading of the column. Where two columns are provided the total of the left (debit) column will be carried to the left side of the account and the total of the right (credit) column will be carried to the right side of the account. 

2. 
To decrease the size of the Journal and at the same time maintain an adequate classification of asset, liability, income, and expense accounts in the ledger, other columns are placed in the Journal to receive figures affecting those accounts which are used less frequently. When these columns are used, it is neces­sary to write the name of the account in the space provided just to the left of the money column. Each entry in these columns will be carried as an individual item to the account, the name of which is entered on the same line. The total of such columns will not be carried to any account. 


The details of handling the Journal are explained in the following pages. 
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All Journal entries start at the left side of the page ; therefore, the columns will be explained in their order from the left to the right side of the Journal. No effort is made to give complete illustrations of various journal entries at this point. Only the working principles are explained with entries to illustrate these principles. Special illustrations are given with the discussions for many of the ledger ac­counts showing how Journal entries should be made for various transactions affecting those accounts. 
EXPLANATION OF COLUMNS USED IN THE 
JOURNAL 

Date-Name-Explanation Columns. 
The date column is provided for information showing the date upon which each transaction is entered in the Journal. 
The name column is used in two ways. It may be used when checks are issued to show the name of the person to whom the check is given, or when invoices are entered to show the name of the creditor (the name of the person or concern which has issued the invoice). At other times, it may be used to show the name of the account or accounts to which entries are to be made when the figures for these entries are placed in the "General" columns. 
One of the most common and worst shortcomings of book­keepers is the abbreviation of the explanations made in regard to various entries to such an extent that when it is necessary for someone else to take up their work, the ex­planations are meaningless. Often they are meaningless to the bookkeeper himself when they have become "cold." Full explanations should always be made in the explanation space. Then, if it appears that some error has been made in the manner of entering the figures, it is relatively easy to check back and make corrections. 
Bank Columns. 
A large percentage of the entries to be made in the Journal will affect the Bank columns. For this reason the Bank columns have been placed close to the left side of the 
The University of Texas Bulletin 
Journal. Each item of cash receipts should be entered in the left hand column as previously explained. All deposit slips, account sales, or other information affecting receipts should be placed in the hands of the bookkeeper without delay. 
As a general rule all payments should be made by check. The amount of each check will be entered in the right-hand column. 
At the end of each month a total will be taken of the figures which have been placed in each Bank column. The total of the left column will be carried to the left side of the Cash account in the Ledger. The total of the right column will be carried to the right side of the Cash account in the Ledger. 
General Column•. 
General columns are provided for those asset and liability accounts which fall under Section T'wo of the classification of Journal columns given above. Each entry in either of these columns will be carried as an individual item to the account affected, the name of the account having previously been placed in the space provided for names at the left of the page. The totals of these columns should be determined at the end of each month, but as each individual item has been carried to some account the totals will only be used in proving the equality of debit and credit entries which have been made in the Journal. 
As each item in the General column is carried to the ledger account the page number of that ledger account will be placed in the folio column so that future reference may easily be made. 
Personal Columns. 
These columns are provided to take care of the withdraw­als or payments made to the owner or the manager of the ranch. Whenever money is drawn from the bank by the manager the amount of such withdrawals will be placed in the left hand (debit) column. Whenever any bills are paid for the owner or manager or his family, such amounts will be placed in the left hand (debit) column. When the owner or manager makes a written report (see page 15) of ex­penditures for ranch expenses or ranch equipment from funds which have been withdrawn for personal uses the amounts of such expenditures will be entered in the right hand column. At the end of the month the total of the left hand column will be carried to the left side of the personal account and the total of the right hand column to the right side of the personal account. 
Operatiq Charcea. 
Labor. 
As practically all entries affecting the Labor account will be items which should be carried to the left side of this ac­count only one column is provided. It is explained in the description of the account (see page 169) that this column will be used for the regular ranch labor or that labor which is at work on regular ranch operations. Amounts paid for extra labor which is used to repair buildings, build new fences, reservoirs, etc., should be charged to the accounts carried for such items and not to the Labor account. When one of the regular employees devotes his time to such ac­tivities for all or such portion of a month that it is possible to charge his entire salary for that month or make a di­vision of his time, such division should be made. This column should receive only the amount of wages paid for regular ranch labor used for ranch operations. At the end of the month the total of the Labor column will be carried to the left (debit) side of the Labor account. 
Automobile Expense. 
The Automobile Expense column, like labor, will receive the majority of its items as charges to the account (debit entries) ; therefore only one column is provided. The fig­ures carried to this account should be only those amounts paid out for gas, oil, repairs, etc., on the ranch cars. Where the owner or manager operates a private automobile the ex­penses for it will be placed in the left (debit) Personal column. At the end of the month the total of the Auto­mobile expense column will be carried to the left side of the Automobile Expense account. 
Table Expense. 
Where separate tables are maintained, one for the ranch hands and the other for the owner, only the expenses for the table maintained for the ranch hands should be entered in this column. Table expense includes meats, groceries, and wages paid cooks, second cooks, flunkies, etc., whose time is devoted to the work of boarding the employees, pro­viding such work is not done by a member of the rancher's family. Care should be used not to enter wages for the rancher's wife or his child under eighteen years of age. Where only one table is maintained and ranch hands are boarded with the family of the owner or manager, all the expense of that table may be entered in this column. Di­vision of this expense may then be made at the end of the year in the manner explained in the discussion of this ac­count. (See page 171.) At the end of the month the total of this column will be carried to the left (debit) side of the Table Expense account. 
Feed and Salt. 
All charges for the purchase of feed, salt, etc., will be entered in the Feed and Salt column unless such amounts are incurred for the purpose of bringing livestock to, or shipping it from, the ranch. If the livestock is being brought to the ranch, such charges will be to the proper livestock "Purchase" account. If the livestock is being shipped from the ranch, the charge will be to the "Selling and Shipping Expense" account. At the end of the month the total of this account will be carried to the left side of the Feed and Salt account. 
Veterinary and Drugs. 
All amounts paid for the services of veterinaries, anti­toxins, etc., should be entered in the Veterinary and Drugs 
column. At the end of the month the total will be carried to the left (debit) side of the Veterinary and Drugs ac­count. 
Repairs. 
Amounts spent for the repairs of ranch buildings, fences, irrigation ditches and machinery should be entered in the Repair column. Repairs should include the wages of those hired to do the work. If regular ranch employees are used for such times that the expense can be allocated, the amounts thus allocated should be entered in this column rather than in the Labor column. This column should also include all materials used for strictly repair purposes, such as lumber, posts, wire, nails, etc. At the end of the month, the total will be carried to the left (debit) side of the Repair account. 
Selling and Shipping Expense. 
All extra expense incidental to the gathering, driving, shipping, and feeding of livestock en route to market or the point of delivery, as well as any commission paid to brokers, feeding charges at stock yards, etc., should be entered in the Selling and Shipping expense column. There will, of course, be many months during which no figures appear in this column. At the close of any month during which such expenses have been incurred the total of the column should be carried to the left (debit) side of the Selling and Ship­ping Expense account. 
Other Expenses. 
As previously explained, a number of expense accounts have been placed in the ledger for which no columns have been provided. The entries for such accounts will be made in the space provided for "Other Expense." When occasion arises to make a charge to these accounts the name of the account affected will be written in the space under the heading "Account." The amount of the charge will then be written in under the heading "Amount." As charges to various accounts will be entered in these spaces, the total, of course, cannot be carried to any one account. Each item must be carried individually to the account affected. The ledger page number on which this account appears will then be placed in the "Folio" column which is to the right of the amount column. At the end of the month the amount column will be totalled so as to prove the balance of the Journal, as previously explained, and will not be carried to any account. 
Livestock Purchases. 
Entries to the various accounts which may be maintained for livestock purchases will not be frequent. When cattle, sheep, or goats are purchased, the name of the livestock purchased will be placed in the space provided under the heading "Kind." If various classes of that kind of livestock are maintained, such as Pure Bred Herd and Grade Herd, the class should be indicated as well as the kind of livestock. The amount expended for the purchase will then be placed in the space provided under the heading "Amount." Where freight, feed, extra labor or other shipping expense is in­curred in connection with bringing livestock to the ranch it should be entered in these columns in the same manner as the entry for the amount of the purchase price which was paid to the previous owner. As many ranches will have various kinds of livestock the total of the amount col­umn cannot, under these circumstances be posted to one account. Each entry will be posted individually to the ac­count affected. The ledger page number to which this entry is posted will then be entered in the folio column shown just to the left of the column provided for the kind of livestock which has been purchased. In those cases where only one kind of livestock is kept on the ranch, the use of the space provided for "Kind" may be dispensed with. Thus, if the ranch had nothing but "Grade" cattle it would be necessary to have only one "Cattle Purchase" account and the total of the amount column could, at the end 
of any month when there have been purchases, be carried to the left (debit) side of the one "Cattle Purchase" account. 
When more than one kind of livestock has been purchased, the total of this column will simply be used for the purpose of proving the balance of the Journal. 
Income Columns. 
Sale of Ranch Products. 
Many ranches have a variety of products which are sold. Products which are important will be more or less constant sources of income. They should, therefore, be carefully classified and set up in separate ledger accounts so that the owner or manager may review his records over each year, or series of years, and see just how much each item has con­tributed to the total income realized from the ranch opera­tions. Thus, there may be sold various kinds of livestock, wool, fire wood, gravel, etc. The amounts received from each different class or kind of product sold should be entered in a separate account in the ledger. The name of the ac­count which should be credited with the income will be written in under the space provided with the heading "Kind." The amount of the sale will then be entered on the same line in the space provided under the heading "Amount." Each item will be carried as an individual posting to the right side of the ledger account affected. The ledger page number of that account will be entered in the "Folio" column shown just to the right of the amount column. At the end of the month the total of this column will be used only for purposes of balancing the Journal. 
Other Income. 
Many ranchers will have income from other sources than the ranch. Interest received, rents, dividends, etc., should all be entered in separate accounts if they amount to ap­preciable sums or come from a variety of sources. Such items represent extraneous income and do not form a regu­lar part of the ranch operations. For this reason, special columns are provided in the Journal. When such items are received, the name of the account which should be credited should be written in the space provided under the 
heading "Account" and the amount written in on the same line in the space provided under the heading "Amount." Each of these items should be posted individually in the ac­count provided and the page number of the account placed in the ledger Folio column, which is at the left of the "Account" column. For illustrations showing the manner in which entries would be made in these columns see Fig­ures 12, 13, and 14. 
CLOSING THE JOURNAL 
At the end of the month totals should be taken of each column in which figures are carried. Before any of the amounts are posted as has been explained in the preceding paragraphs, the equality of debits and credits should be proved. To arrive at this balance it is necessary to add the total of all the debit columns and be sure that this total equals the combined total of all the credit columns. Then, the totals should be posted as previously explained and the ledger page number written just to the left and slightly above the amount, as shown in the illustration. 
THE LEDGER-ASSET ACCOUNTS 
GENERAL PRINCIPLES 
It has been explained that the journal may be compared with a system of chutes where various grades and kinds of cattle are classified and the ledger to the corrals where each kind or class is held. Each of the divisions in the ledger is known as an "account." Each account may be compared to a separate corral. All of the accounts are arranged in groups, in the same way that all stock of a certain kind are grouped at a stock show. These groups of accounts are known as: 
1. Assets.-AU accounts which record the value of items owned by the rancher (items for which the rancher holds legal title) are classed as asset accounts. The names of the accounts which will fall in this group are: 
Cash Notes (Bills) Receivable Accounts Receivable Securities Inventories : 
Cattle Sheep and/or Goats Horses Feed Miscellaneous 
Equipment Improvements Land Other Assets 
2. Liabilities.-AU accounts which record the amounts which the rancher or the ranch business owes to outsiders are classed as liability accounts. This group will contain the following accounts : 
Accounts Payable Notes Payable Mortgages Payable 
3. Net worth or Proprietorship.-These accounts rep­resent the value of the investment which the owner or own­ers have in the ranch. The accounts used in this section will vary according to kind of ownership existing in the particular business. Thus, if the business is owned by: 
(a) 	
An Individual, the account names will be (Name of Owner) Capital (Name of Owner) Withdrawals 

(b) 
A 	Partnership, the account names will be 

For 	each partner A Capital Account A Withdrawal Account 

(c) 	
A Corporation, the account names will be Capital Stock Surplus 


4. 
lncome.-All accounts which carry the classified rec­ords of amounts for which various ranch products are sold or the amounts received from outside investments, etc., are 

5. 
Expense.-In this group are all of the accounts which carry a classified record of the various expenses or outgo required to produce the income which is classified in the previous section ( 4). They are: 


classed as "Income" accounts.  These accounts are :  
Cattle Sales  Service Sales  
Mutton Sales Wool Sales  Grazing Leases Oil Leases  
Goat Sales  Interest Income  
Mohair Sales  

Cattle Purchases Repairs Sheep Purchases Table Expense Goat Purchases Depreciation Feed and Salt Selling and Shipping Expense Labor Taxes and Insurance Round-up Expense Leases Clipping and Shearing Expense Interest Expense Auto and Truck Expense Miscellaneous Gain and Loss Veterinary and Drugs 
In double entry bookkeeping every transaction will be recorded in two or more accounts. All entries to these ac­counts are made in such a manner that the total amounts entered on the left (debit) side of the accounts will exactly equal the amounts entered on the right (credit) side. When the entries are made, a trial balance may be taken at the end of each month. If the mechanics of the work have been 
carried out accurately the accounts with right hand, or credit balances, should exactly equal those with left hand, or debit balances. To accomplish this the following rules may be used: 
1. 	(a) Whenever an entry is made which will increase the amount shown in an asset account, the entry will be made on the left (debit) side of the account. 
(b) Conversely, 	a decrease in an asset account will be re­corded by an entry on the right (credit) side of the ac­count. 
2. 	(a) Whenever an entry is made which will increase the amount shown in a liability account the entry will be made on the right (credit) side of the account. 
(b) 	Conversely, a decrease in a liability account will be re­corded by an entry on the left or debit side of the account. 
3. 	(a) Whenever an entry is made which will increase the amount of the net worth, or proprietorship the entry will be made on the right or credit side of the account. 
(b) 	
Conversely, a decrease of net worth or proprietorship is recorded by an entry on the left or debit side of the ac­count. 

(c) 	
All income accounts tend to increase net worth or pro­prietorship; therefore, the entries will normally be made on the right hand or credit side of these accounts. 

(d) 	
All expense accounts tend to decrease net worth or pro­prietorship; therefore, the entries will normally be made on the left hand or debit side of the account. (NOTE) At the end of the year the balances of all income 


and expense accounts are summarized in the Profit and Loss account. The results of this summary show the profit and loss for the year. This figure is then carried to the Net Worth or Proprietorship account or accounts. 
By applying the rules given above to the various illus­trations and explanations given in the succeeding pages, the entire scheme of double entry bookkeeping may be un­derstood. So as to assist the reader, extensive illustrations have been prepared, followed by explanations of the vari­ous entries for all accounts in which it was thought the reader might have difficulty. 
LEDGER ACCOUNTS 
CASH 
All cash that is received as a result of any transaction arising from the ranch business should be deposited in the bank. The amount of each item received will be entered in the left-hand (debit) column of the journal, which is headed "Bank." It will also be entered in one or more of the other columns as shown in the succeeding illustrations. The total of the left-hand bank column will be transferred to left-hand money column of the "Cash" account in the ledger. The date column should show the date "as of" which this figure was transferred from the journal to the ledger. 
Checks shoUld always be given in making payments on transactions which arise in connection with the ranch busi­ness. The practice of giving one check in payment of sev­eral different kinds of items should be avoided. The amount of each check should be entered in the right-hand 
(credit) column of the journal which is headed "Bank." It also will be entered in one or more of the other columns as shown in the succeeding illustrations. The total of the right-hand column will be transferred to the right-hand money column of the "Cash" account in the ledger. The "date" column should show the date "as of" which the total was transferred from the journal to the ledger account. 
When the journal is "closed" and the totals are posted to the ledger, the difference between the amount of the de­posits and the amount of the checks issued should agree with the bank balance shown by the bank statement after taking into consideration those checks which have not passed through the bank. Where the entries are made from the returned checks great care must be exercised when statements are made up at the end of the year to make sure that all outstanding checks which have not been cancelled through the bank are taken into consideration. These out­standing checks should be entered in a distinctive manner in order to avoid confusing them with the checks which have been passed through the banks. In this way, the 
possibility of making duplicate entries will be greatly re­duced. At the end of the year or at other times when statements are made up and such entries are necessary, these items will be carried from the journal to the cash account and the other ledger accounts affected (expense or asset or liability accounts). Later, when these checks are received from the bank they should be segregated so that they will not be entered a second time. An alternative method is to record the uncashed checks as liabilities as explained on page 180. 
19~ 
Jan 
MQr 
Mu~ 
= 
J1.1l 
(1) 7  (2l  (3)  14  (t) I~. n7  {2.'  3  l.ll\  
31 31 31 ~  2 3 5  3,440 94 ISO 00 16,738 40 .:io 'lt< 34  J"an 31 Feb ZS MGr 31 !\pr30l14t 31 Ju 30  B<tlClnce  2 z ~ 3 5 6  1,450 75 4,~10 20 so~ ZS 2,750 50 G, ZIO 00 1,000 00 3,804 6+ 2.03'2.• :Sf  
l  Bc.lo.nc.c HaY\ci  on  ~.~04 64  

FIGURE 11 
In this illustration, the totals of the "Bank" columns in the journal are transferred to the cash account at the end of each month. The date columns (1) indicate the date "as of" which these totals were transferred. In most cases, there will be no reason to enter anything in the explanation columns (2) . The next columns (3) should contain the journal page number from which the figures were obtained. The money columns (4) will show the amount of the de­posits on the left side and the amount of the withdrawals on the right side. 
When the entries in the journal are made from the re­turned checks, it will necessarily be some time after the first of the month before the checks are received and en­tered. As the entries will not cover transactions occurring after the beginning of the new month, the totals will be transferred "as of" the first of the month. The result is that the date shown in the ledger account will be the first of the given month or the last day of the previous month, although the actual transfer was made sometime thereafter. 
NOTES (BILLS) RECEIVABLE 
When a note is received as written evidence of a debt, the record will first be made in the left-hand (debit) "Gen­eral" column in the Journal. From there, the item will be transferred to the left-hand amount column of the Notes Re­ceivable account in the ledger. The date qpon which the note was received should be entered in the "date" column of this account, and a brief explanation of important facts regarding the note should be entered in the "Explanation" column. The "Folio" column should contain the page num­ber of the Journal from which the item was "posted." 
NOTE: Frequently, two or more notes which cover the unpaid amounts on a given transaction are received, each note falling due at a different date. Under these circumstances, each note should be entered separately in the journal and in the ledger. 
When a note is paid in full the entry will first be made in the right-hand (credit) General column in the Journal. From there the item will be transferred to the right-hand money column of this account in the ledger. It is con­venient to enter it upon the same line on which the record of the note was originally made. When the entries are ar­ranged in this manner, the "open" items represent the out­standing notes; and the ledger account will give much of the information which would be obtained by using a Note Register. The date upon which payment is received should be entered in the date column and a word of explanation as to how the note was paid should be entered in the explana­tion column. 
In the event that the note is paid in partial payments, there are various methods of handling the transactions. At the time a partial payment is received, the date and the amount of the payment should always be written on the 
Aceounting Procedure for Livestock Ranches 63 
back of the note, or, better, the original note should be can­celled and a new note made out for the amount remaining unpaid. The amount received will be entered in the left­hand "Cash" column in the Journal, the unpaid amount in the left-hand "General" column, and the total amount of the note in the right-hand "General" column. 
The full amount of the note will then be carried to the right-hand amount column of the ledger on the line where it was originally recorded on the left-side. Then the un­paid portion will be carried from the left-hand "General" column to the left-hand column in the ledger. This transfer will be a new entry with an appropriate explanation on the first free line on the left-hand side of the account. (See line No. 3, Figure 12.) 
When an extension is given the debtor, notation of this fact may be made on the note. It is a better practice, how­ever, to cancel the original note and to make a new one. In either case, an entry should be made in the Journal showing the change. This information should then be transferred to the ledger account. (See line No. 4.) 
The first note listed in the ledger account, that of R. P. Mills, was brought on the books at an earlier date than the notes listed in the illustrative journal entries given. This note had not fallen due on April 1, 1928, when the Meyers note was renewed; consequently, the line on the right-hand side of the ledger page is blank. By using these "open" lines as a guide, anyone reviewing the account can see at once that there are only two outstanding notes receivable. 
The first journal entry in Figure 12 shows the sale of 160 two-year-old heifers to W. A. Myers for $12, 700. Of this amount, $7,700 was paid in cash. The balance was covered by two notes of $2,500 each, one due in 6 months and the other in one year. The total amount of the sale was entered in the column provided for the "Sale of Ranch Products," and the cash received was placed in the left-hand "Bank" column. As each individual item in the "General" column must be transferred to the ledger, it will be observed that each note is recorded on a separate line on the ledger page. 
JJURNAL 


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FIGURE 12 
At this point the equality of debits and credits may be noted. The sale of the cattle and the receipt of the cash and the notes represent one complete transaction. In recording this, the Bank is debited for $7,700, and Notes Receivable is debited for $5,000 ( $2,500 +$2,500), the credit of $12, 700 being to Cattle Sales. 
o,t . 
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The second part of the illustration shows the entries to be made when payment is received on the first note. Mr. Meyers has paid $2,500, the total face value of the first note. Cash is therefore increased by this amount, and there is that much less in the Notes Receivable account. Therefore, the entry is placed in the left-hand "Bank" column and in the right-hand "General" column. The item in the "General*' column is then transferred to the right-hand side of the ledger account, the entry being made on the same line that carried the original information in regard to this note. 
As the interest on the notes would in all probability be collected at this time, the entry has been made in the journal to take care of this phase of the transaction. Generally the check received would be for the amount of the note and the accrued interest, $2,600 in this case. To make the transaction clearer, two separate entries have been made in the journal, one to record the payment of the note, the other to record the payment of the interest. It will prob­ably be best for those who are not thoroughly familiar with bookkeeping to make the entries in the manner illustrated, even though they receive only one check to cover the pay­ment of both principal and interest. 
The third group of entries illustrates the procedure when a partial payment is received and the balance of the note is extended. The cash received is entered in the left-hand "Bank" column. The amount of the old note, $2,500, is en­tered in the right-hand "General" column and the amount of the new note in the left-hand "General" column. The figures in the "General" column will then be transferred to the ledger account. The $2,500 item is entered in the right­hand amount column of the ledger, thus showing that the note recorded in the left side is no longer outstanding. The $1,500 item is then entered in the left-hand amount column of the ledger with the detail information regarding the new note shown in the explanation column. As in the previous illustration the recording of the interest is shown for the sake of completeness. 
If this note had been originally made out for a longer period of time, say 2 years, and this $1,000 was a partial payment, the transaction could be handled in the same way. 
The last group of entries shows the records which may be made when the note is renewed and only the interest is collected. In this case the only entry in the "Bank" column of the Journal is for the receipt of the interest, and it is placed in the left-hand column. The $1,500 for the old note, which should be cancelled, is entered in the right-hand "General" column and the amount of the new note, in this case the same amount, entered in the left-hand "General" column. The figure ($1,500) shown in the right-hand col­umn is then transferred to the right side of the ledg-er ac­count to record the cancellation of the old note, and the other figure ($1,500) is entered on the left side of the account, thus making a record of the new note. 
ACCOUNTS RECEIVABLE 
Accounts Receivable represent the amounts which are due from oth-ers and for which no formal written promise to pay has been received. If a formal written promise properly made out has been received, the debt would be classed as a Note Receivable. 
In many mercantile businesses, enormous amounts are carried each month in Accounts Receivable. In the major­ity of cases, these accounts are paid at the close of the month. A corps of especially trained credit men check up on these accounts and see that they are paid. The ranch business is fortunate in having relatively few outstanding accounts of this kind. Very often, however, such accounts are unavoidable. A neighbor buys a saddle or some hay, seed is sold to a tenant, or a nearby farmer buys a few calves. Often the settlement for such sales is deferred until some convenient time in the future. A definite record should at once be made of all such transactions. Such a record avoids many misunderstandings and much bitter­ness and takes but a few minutes of time. Whenever any­thing is sold or any money is loaned and a formal note or full payment is not received, an account should be opened for the person owing the amount. 
The following illustrations will indicate how different transactions should be handled in the journal and in the various accounts which are classed as Accounts Receivable. 
The following explanations cover the items shown in the foregoing illustrations: 
(1) 	Sale on Account of Livestock Other than Cattle, Sheep, etc. 
The team was sold for $190. The amount is entered in the left-hand "General" column of the Journal and carried. from there to the left side of the account which will be op­ened for Mr. Bobb. This account will then be the classified record of Mr. Bobb's indebtedness. If the ranch was regu-. larly raising horses and mules for sale, the other side of the entry would be made in the columns provided for "Sale of Ranch Products." It would not then be necessary to figure the profit on each sale. When such stock is not regularly raised for sale, and consequently such sales are relatively infrequent, each sale consummated will be handled in the same manner as sales of "Equipment" or "Land." Under these circumstances the profit or loss on each sale is figured 
JOURNAL
-
GENERAL
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FIGURE 13 
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Accounting Procedure for Livestock Ranches 69 
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FIGURE 13A 
separately. In this case, it is assumed that such sales do not occur regularly. 
It is considered that these mules were carried in the in­ventory at $80 a head. One hundred and sixty dollars will then be entered in the right-hand "General" column and will be carried to the right side of the "Horses and Mules Inventory" account in the ledger. This entry reduces the balance of that account. 
NoTE.-A proper notation should also be kept on the Inventory sheet, which will cause it to show that there are that many less head to be accounted for. (See inventory.) 
The difference between the carrying value and sales price of this stock is the profit realized on the sale. This profit ($30) will be entered in the "Other Income" column and will be carried from there to the right side of the "Miscel­laneous Gain and Loss" account. 
Had these mules been sold at a loss, the entry would be made in the same manner. Under these circumstances, however, the figure in the right-hand "General" column of the Journal showing the carrying value of the mules would be larger than the amount received for them, which is re­corded in the left-hand "General" column. The loss would not be entered in the "Income" column but would be re­corded in the "Other Expense" column, with a notation that it was a "Miscellaneous Gain and Loss" item. It would then be transferred to the left side of that account. 
(2) Advance on Account of Property to a Tenant. 
Many ranchmen have tenants on a portion of their land. It is not uncommon for conditions to arise which necessitate making advances to these people. This illustration shows the necessary entries for an advance of hay. The amount 
($135) is first entered in the left-hand "General" column of the Journal and is carried from there to the left side of the account which will be opened in the ledger for Mr. Webb. The credit for this transaction will be entered in the right-hand "General" column. The hay which had been advanced to the tenant would be a decrease in the amount available for the owner's stock. If this feed had been pur­chased this year the amount should be carried to the right­hand side of the "Feed" account. If no feed had been pur­chased during the present year, this amount would be car­ried to the "Feed Inventory" account. 
(3) Advance of Money on Account. 
In this case, the amount advanced is first entered in the right-hand "Bank" column of the Journal to record the withdrawal of the cash. The other (debit) entry is made in the left-hand "General" column and is carried from there to the account kept for the man to whom the money was advanced. If there is no account for him already, one should be opened. 
(4) Sale on Account of Livestock or Other Ranch Products. 
It is often inconvenient to settle for the sale of cattle or other livestock at the time they are delivered. When the final settlement is not made at the time of delivery, a record of the transaction should immediately be made in the books. This record should contain a full explanation of the agree­ment. It will then serve as a valuable piece of evidence in case of a misunderstanding or the death or the incapacity of either contracting party. In making the entry, the amount is first placed in the left-hand "General" column of the Journal. From there it is carried to the left side of the account which is kept or which should be opened for the person or concern purchasing the cattle. The record will also be made in the columns provided for the "Sale of Ranch Products" so as to record the amount of income received from the sale of the cattle. Ifthis had been a sale of sheep, wool, or mohair, the first part of the entry would have been made in the same way. The latter figure would, however, have been preceded by the name of the article sold. 
(5) Sale of Equipment on Account. 
This sale, like the preceding ones, will have the first entry made in the left-hand "General" column of the Jour­nal and will be transferred from there to the left side of the account kept for the particular debtor. In this case, it is assumed that the saddle sold was carried in the books at $20; consequently, the $20 is entered in the right-hand "General" column and carried from there to the right side of the "Equipment" account in the ledger. If this saddle has been sold for more or less than the value at which it was carried in "Equipment" account, the profit or loss should be recorded as explained in (1) of this illustration. 
(6) 	Settlement of an Account with Cash and Notes. 
This entry illustrates the closing transaction for the sale of the heifers. The $1,110 received in cash will be entered in the left-hand "Bank" column of the Journal, thus record­ing the increase in cash. The $1,110 note will first be re­corded in the left-hand "General" column and will be car­ried from there to the left side of the "Notes Receivable" account, in the manner shown in the discussion of Notes Receivable. The $2,200 entered in the right-hand "General" column is carried to the right side of the debtor's (Mr. Bond's) account in the ledger, thus showing that the ac­count, as such, has been settled. 
(7) 	Receipt of Mixed Check Covering the Amount of Ad­vance to Tenant and the Land Oumer's Share of the Crop Money. 
The total amount of money received is entered in the left­hand "Bank" column of the Journal. The amount of the advances is entered in the right-hand "General" column and is carried from there to the Tenant's account (Dan Webb). In this case, the account is completely paid and may be "closed" (note the manner of ruling and of entering totals). The balance of the money received ($967.60) represents the owner's share of the receipts from the tenant's crop. The amount will be entered in the "Other Income" column with a notation showing that it is to be carried to the "Rent Income" account. The figure will be placed on the right side of that account. 
Accounting Procedure for Livestock Ranches 73 
SECURITIES 
Many ranchmen own various kinds of securities such as bank stock, Liberty and other types of bonds, stock in live­stock associations, mortgages, etc. When securities are acquired, the entry will first be made in the left-hand (debit) "General" column of the Journal. Stocks and bonds are frequently purchased at prices somewhat above or below their "par" or face value (the value printed on the face of the security). This difference may be due to two causes. First, the cost price of the security may be greater or less than the par value; thus, a $1,000 share of bank stock may be acquired at a purchase price of $2,500, or a high grade $1,000 bond carrying a high interest rate may be purchased for $1,200. In each of these cases, the amount entered in the "General" column of the Journal and carried to the left side of the "Securities" account should be the actual price paid (excluding amounts paid for ac­crued interest) and not the amount printed on the face of the security. In the same way, if the bond had been pur­chased for $900, this would be the amount which should be charged to the account. The second cause which always tends to increase the price of the security arises when bonds and mortgages are purchased between the dates on which interest is paid. Thus, if a $1,000 bond with an in­terest rate of 8%, payments falling due every six months 
(say January 1 and July 1) was purchased on the first of April, the party from whom the bond was acquired is en­titled to the interest for the time intervening between the last interest payment and the date of the sale. The party holding the bond at the end of the interest period (July 1) will receive the check for the six months' interest. Because of this fact it is customary for bonds to be sold at a given price "plus accrued interest." In the case given above, the $1,000 bond would cost the purchaser $1,000+$20 (one­fourth of $80, the annual interest) : in all $1,020. This 
$20 is not a part of tlie cost of the bond but is an adfustment of interest. The "Securities" account will therefore be 
charged with only $1,000 and the "Interest" account will be 
charged with the other $20. 
The proper entering of these items is not difficult, but it requires some care when the value of the security is above · or below the face value and the element of accrued interest is also involved. If the bond previously mentioned had been purchased for $1,200 and the $20 interest had also been paid, the entry would require the $1,200 to be entered in the "Security" account and the $20 in the "Interest" ac­count. In the same way, if the bond had been purchased for $900 and $20 accrued interest, the $900 would be en­tered in the "Securities" account and the $20 in the "Inter­est" account. 
Capital stock, when purchased above or below par, is or­dinarily carried on the books at the purchase price until it is sold. Bonds are handled in another way. To illustrate, when a $1,000 6% bond is purchased at 103, the purchaser pays something above par for this bond because of the high interest rate and the relatively high security behind the bond. At the date upon which the bond is paid, the holder will not receive $1,030 but $1,000. The bond has therefore lost $30 of value while in the possession of the purchaser. This loss obviously should be spread over the time that the bond is held and not all taken when it is paid. To do this a certain proportion of the $30 should be written off at each interest date. There are several ways to write off this amount. The simplest and most practical method to fol­low for the investor who does not handle large issues is to write the premium off in equal amounts. The interest on bonds is ordinarily paid semi-annually. In the case given above where the bond was purchased for $1,030, assume that the bond would become due six years after the purchase date. There would then be 12 interest payments of $30 
(one-half of $60, the interest rate on a $1,000 bond at 6%). Each of these interest payments would represent two things: 1, a proportionate part of the $30 premium origi­nally paid for the bond, and 2, the "effective" interest which the holder of the bond receives for the use of the money. 
The $30 would then be distributed as follows : Cash would, of course, be charged with the entire amount. On the right side of the "Bond" account an entry of $2.50 would then be made to show that the value of the bond had been reduced by that amount. The balance of the payment, $27.50, would be entered on the right side of the "Interest" account. 
If the securities are purchased below par, the entry would be made in practically the same way. Tbe "Securities" ac­count would have the actual cost price of the security en­tered on the left-hand money column. The value of bonds will, as explained in the last paragraph, gradually change until they are worth par at the due date. When bonds are purchased below par, it is considered that the interest rate is not high enough for the type of security offered. At the time they are paid, however, the purchaser will receive par. The increased value should be brought on the books during the time the bond is held and not in a lump sum when it is paid. To illustrate: Assume that a 6% bond was purchased at 97 and that the bond would fall due at the end of six years. On the date due, the holder will receive $1,000. There has been, then, a $30 increase in value during the six years, which amounts to $5 a year, or $2.50 for each six months' interest period. When the semi-annual interest payment of $30 is received, it and the $2.50 increase in the value of the bond will the entered on the right side of the "Interest" account. The earning for the period is then $32.50. The amount of cash received would be entered in the left side of the "Cash" account, and the extra $2.50 would be entered on the left side of the "Securities" account. 
Whenever an item of securities is sold, the entry should be made on the right side of the "Securities" account at the exact figure at which the security stands on the books at that time. Thus if a $1,000 bond is purchased at par, the entry on the left side of the "Securities" account would be $1,000. If this bond were sold at 102, the seller would receive $1,020 for it. In recording this transaction, "Cash" would be charged with the $1,020, the "Securities" account would receive an entry on the right side for $1,000, and the "Miscellaneous Gain and Loss" account would have the $20 profit entered on the right side. If the bond had been sold at a loss, the entry in the "Securities" account would be the same; thus if the bond had been sold at 98, the seller would receive $980 and the $20 loss would be entered on the left side of the "Miscellaneous Gain and Loss" account. 
The foregoing illustration shows the following entries: 
(1) Purchase of One Share of Bank Stock.-The record in the "Bank" column of the Journal ($2,500) shows the cash expenditure; the figure in the left-hand "General" column ($2,500) shows the debit which will be carried to the left side of the "Securities" account. 
(2) Purchase of Bonds at Par and Accrued Interest.­
The entry in the right-hand "Bank" column of the Journal ($2,030), records the expenditure of cash. The $2,000 item in the left-hand "General" column is the item which is car­ried to the left side of the "Securities" account, thus show­ing the value of the securities which have been purchased. The $30 entry in the same column represents the payment made to the seller for the interest which had accrued be­tween the last interest date and the date upon which the bond changed hands. This $30 is carried to the left side of the "Interest" account. 
(3) 
Purchase of Bonds at a Premium with Accrued In­terest.-The right-hand "Bank" column of the Journal shows the record for the cash expenditure of $5,225. The $5,150 item in the left-hand "General" column shows the actual cost of the bonds and is therefore transferred to the left side of the "Securities" account. The $75 item repre­sents the interest which had accrued between the last inter­est payment date and the date of purchase, and it will be carried to the left side of the "Interest" account. 

(
4) Receipt of Interest Payment on a Bond Purchased at Par.-The interest check received from the Pacific Gas and Electric Company will be for the entire six months' period, in this case from January 1 to July 1. The interest on $2,000 for six months at 6% amounts to $60. The amount is first recorded in the left-hand (Deposit) "Bank" 


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FIGURE 14 
column of the Journal. It is also entered in the "Other In­come" column with a notation showing that it goes to the "Interest" account. When the bond was purchased upon which this interest is received, $30 of accrued interest was entered on the left side (debit) of the "Interest" account. The difference between this $30 and the $60 just entered on the right (credit) side of the account shows the amount ($30) that has been earned during the time the bond has been held. 
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FIGURE 14A 
(5) Receipt of Interest Payments on a Bond Not Pur­chased at Par.-The receipt of the check is recorded in the left-hand "Bank" column of the Journal. The amount which should be considered interest earned would, however, depend upon the way the bond was purchased. If the bond had been purchased below par, its value would have gradu­ally increased and the proportionate part of this increase should be entered in the books when the interest is recorded. Under these circumstances, there would be an entry in the left-hand "General" column of the Journal for the amount of this increase. The amount shown in the "Other Income" column and carried to the right side of the "Interest" ac­count would be increased the same amount. In this illus­tration, the bond was purchased at a premium and has six years to run before it will be paid. One-twelfth of the premium may, then, be deducted at this time. This deduc­tion of $12.50 will be recorded in the right-hand "General" column of the Journal and carried to the right side of the "Securities" account. The account will then show that the 
M.K.&T. bonds are not worth $5,150 but the difference be­tween $5,150 and $12.50 or $5,137.50. The remaining part of the interest payment, $137 .50 will then be recorded in the "Other Income" column with a notation that it is to be transferred to the "Interest" account. 
(6) 
Sale of Bonds at a Profit with Accrued Interest.­Here, as in the other entries, the first record is made in the left-hand "Bank" column of the Journal to record the re­ceipt in cash. The entry in the right-hand "General" col­umn ($2,000) is carried to the right side of the "Securities" account. This entry offsets the one made on the left side at the time the bonds were purchased, thereby showing that they are no longer carried on the books. The $40 profit arising from the sale of the bonds is entered in the "Other Income" column with a notation that it is to be carried to the "Miscellaneous Gain and Loss" account where it will be placed on the right side. The interest ($16.66) which has accrued since the last interest payment is also recorded in the "Other Income" column and carried from there to the right side of the "Interest" account. 

(7) 
Sale of Bonds at a Loss with Accrued Interest.­Cash is charged with the amount received ($1,005) in the left-hand "Bank" column of the Journal. The right-hand "General" column will next have recorded in it the present carrying value of the securities sold in this case, $1,027.50. 


Cost of five M.K.& T. $1,000.00 bonds __________ ._____ $5,150.00 Deduct amount written off when interest payments 
were recorded _____ _____ 12.50 
$5,137.50 $5,137.50+5=$1,027.50, present value of each $1,000.00 bond. 
This amount ($1,027.50) is transferred to the right side (credit) of the "Securities" account. When this bond is sold for $1,000 there is a loss of $27.50 to the seller ($1,027.50-$1,000=$27.50). This loss may be entered in the left-hand "General" column of the Journal and carried to the left side of the "Miscellaneous Gain and Loss" ac­count. The interest which has accrued since the last inter­est payment ($5) will be entered in the "Other income" 
column, marked "Interest" and carried to the right side of the "Interest" account. 
INVENTORY ACCOUNTS 
On pages 19 to 47 a discussion is given of the inventories which may be required on various ranches. At the end of the year, the total values of each group of items which are carried on a particular inventory will be placed in an ap­propriate account in the ledger. Some of these totals will be placed in accounts which by common custom are called "Inventory" accounts. Others will be placed in accounts carried under the name of the item, the word "Inventory" not being a part of the account title. Some of the following accounts, in the title of which the word "Inventory" is used, are practically certain to appear on the books of every rancher. 
Cattle Inventory Feed Inventory Sheep ~mj/or Goat Inventory Wool and/or Mohair Inventory Horse Inventory 
As a rule entries to these accounts are made only at the 
end of the year. For this reason no illustrations are given 
at this time. Illustrative entries affecting these accounts 
will be found in the chapter devoted to "Closing Entries." 
Ledger accounts carrying the values shown on inventory 
sheets such as the "Equipment Inventory" and the "Im­
provement Inventory" are handled somewhat differently 
than those given in the above list. The items shown on these 
sheets are permanent portions of the ranch property and 
equipment. Each of these accounts is, therefore, given 
special consideration in the following pages. 
EQUIPMENT ACCOUNT 
The nature of the items which are considered equipment and some of the problems arising in the proper recording of these items are explained in the preceding discussion of the "Equipment Inventory" sheets. It is the purpose at this point to explain the entries that should be made in the journal and in the ledger. 
Accounting Procedure for Livestock Ranches 81 
It is assumed that the books are opened "as of" the first of the year; that is, although the actual entries may not be made until some time after the first of the year, the values which existed at the first of the year will be brought onto the books and all transactions affecting these values since the first of the year will be recorded. The accompanying illustration shows the entries for the following transactions : 
(1)  Bringing onto the books the original value of the equipment  
inventory  
The purch11se of new equipment  
(2)  For cash  
(3)  For part cash and an old piece of equipment traded in for  
an amount exactly equal to the value at which it is car­ 
ried on the books  
(4)  For part cash and an old piece of equipment traded in  
for $10 m,ore than it is carried on the books  
(5)  For part cash and an old piece of equipment traded in  
for $10 less than it is carried on the books  
(6)  The loss of equipment  
(7)  Recording the annual depreciation on the equipment  

(1) Entries for the Original lnventory.-When the to­tal value of the equipment on hand is determined, the figure will appear as a total of the "Carrying Value when En­tered" column on the "Equipment Inventory" sheet. This figure will then be entered in the journal as shown on line 
(1). The figure will be placed in both the left (debit) and the right (credit) sides of the "General" columns. The debits will be carried to the left side of the "Equipment" ac­count. The credit will be entered on the right side of the "Proprietor's Capital" account. 
(2) Purchase of New Equipment for Cash.-The amount of the check given in payment of the wagon ($125) is entered in the right-hand (credit) "Bank" column, the same figure being placed in the left-hand (debit) "General" column. This debit is then carried to the left side of the "Equipment" account. The same amount will also be en­tered in the "Cost" column of the "Equipment Inventory" sheet. 
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(3) Purchase of New Equipment-Old Equipment Traded In at Carrying Vaiue.-In this case, the net in­crease in the value of the equpiment is exactly equal to the amount of cash expended. The amount of the check is entered in the right-hand (credit) "Bank" column and the same amount in the left-hand (debit) "General" column from where it is carried to the left side of the "Equipment" account. Two things should be done to the inventory sheet: first, an entry should be made to record the new wagon, giving all the necessary information including the price, which was $125. Second, the value of the old wagon should be crossed off with proper explanation. 
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FIGURE 15A 
(4) Purchase of New Equipment-Old Equipment Traded In for More than Its Carrying Value.-In this case the amount of the check is not equal to the total increase in the value of the equipment. The amount of the check, $75, is recorded in the right-hand (credit) "Bank" column and the increase in the value of the equipment ($85) is recorded in the left-hand (debit) "General" column and is carried from there to the left side of the "Equipment" account. The figure required to balance these two entries (in this case, $10) is placed in the right-hand "General" column and carried from there to the "Proprietor's Capital" account. The reason for this profit amounting to $10 is that too much depreciation has been charged off in previous years. As a consequence.. the profits which resulted in increases to the capital account were $10 less than what in this case proved to be the correct amount. The entries on the "Equipment Inventory" sheet will not be affected by this profit except that a full explanation should be given. 
(5) 
Purchase of New Equipment-Old Equipment Traded In for Less than Its Carrying Value.-This case is exactly the reverse of the one just explained. The cash payment is $85, which is recorded in the right-hand (credit) "Bank" column. The net increase in the "Equipment" ac­count is $75. (Sales price of new wagon, $125, minus car­rying value of old wagon, $50, equals $75.) This $75 is placed in the left-hand (debit) "General" column and car­ried from there to the left side of the "Equipment" account. The difference between this increase and the cash paid, $10, would be placed in the left-hand (debit) "General" column·and carried from there to the left side of the "Pro­prietor's Capital" account. When this sale of the old wagon was made, it proved that the depreciation allowed in previous years was not sufficient. As a consequence, the profits had amounted to $10 more than they should have. The entry on the "Equipment Inventory" sheet will be handled in the manner explained in the previous illustration. 

(6) 
Equipment Destroyed.-Equipment may be de­stroyed in many ways. It also becomes unusable from age or improper care. Regardless of the reason, a record should always be made when any of the equipment becomes worthless. Line 6 shows the journal entry which should be made under these circumstances. It is assumed that the wagon was carried at $50.00. This amount is entered in the right-hand (credit) "General" column and carried from there to the right side of the "Equipment" account. Fifty dollars is also entered in the "Other Expense" column with the notation that the figure should be carried to the "Miscellaneous Gain and Loss" account where it will be entered on the left side. The only entry required on the "Equipment Inventory" sheet will be the elimination of the $50.00 item with a clear explanation. 

(7) 
Depreciation.-Depreciation is, as a rule, figured only at the end of the year. The amount of depreciation on each of the various items of equipment will be entered in 


the column provided for the Annual Charges to depreciation on the "Equipment Inventory" sheet. When all entries have been made in this column it will be totaled and this total will be entered in the Journal as shown on line (7). Five hundred and eighty-six dollars and forty cents is as­sumed to be the figure determined in this manner, and is entered in the right-hand (credit) "General" column and carried from there to the right side of the "Equipment" ac­count. This entry on the right side of the "Equipment" account reduces its balance by the same amount that the in­dividual subtractions do the total value of items on hand. If everything has been counted correctly and all entries have been made in the books, the balance of the "Equip­ment" account should exactly agree with the total of the "Carrying Value when Entered" less the total of all the "Annual Charge to Depreciation" for the new year. The other ~ide of the entry is placed in the "Other Expense" col­umn with the notation that it should be carried to the "De­preciation" account. 
THE IMPROVEMENTS ACCOUN'r AND THE RESERVE FOR DE­PRECIATION OF IMPROVEMENTS 
As in the other accounts discussed it is assumed that the books are opened "as of" the first of the year, and that the values entered at that time are those which existed on the first of that particular year. At that time the "Inventory of Improvements" sheet will carry the data regarding the date the improvement was acquired, the cost of the par­ticular improvement, the rate of depreciation, and the amount of depreciation which has occurred between the time the particular building, fence, windmill, etc., was com­pleted to the date of the opening of the books. The differ­ence between the "Cost" column and the "Accumulated De­preciation" column will then be carried into the "Carrying Value when Entered" column. Or, if present values are used, the original figures will appear in the "Carrying Value when Entered" column. Figures to correspond with the figures shown in these columns will also be carried into the books of account. 

FIGURE 16 
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(1) Entering value of original inventory.-The to­tal of the "Cost" column, plus the amount of any items brought onto the records at present values, will be entered in both the left and right "General" columns of the Journal 
($20,462). The entry in the left-hand column will be car­ried to the left (debit) side of the "Improvements" account. The entry in the right-hand column will be carried to the right (credit) side of the "Proprietor's Capital" account. The amount of the depreciation which is accrued to date will then be brought on in much the same manner. 
(2) Entering the accumulated reserve when the books are opened.-In the previous entry the total amount shown in the "Cost" column was brought into the "Improvements" account (the amount of items brought on at present value may be disregarded at this time) and this total was credited to the "Proprietor's Capital." The present value of these improvements to the proprietor, however, is not their origi­nal cost, but the amount of the original cost, plus any sub­sequent additions, less the depreciation. The books should then show the amount of the accumulated depreciation to date. To bring it on the books the total of the "Accumulated Depreciation" column on the Improvements Inventory will 
be entered in both the debit and credit "General" columns of the Journal ($7,242). In this case the amount entered in the left-hand column will be carried to the left side of the "Proprietor's Capital" account thereby reducing that ac­count by the amount of the accumulated depreciation. The figures shown in the right-hand "General" column in the Journal will be carried to the right side (credit) of the "Reserve for Depreciation on Improvements" account. The difference between the balance of the "Improvements" ac­count and the balance of the "Reserve for Depreciation of Improvements" should then be exactly equal to the total of "Carrying Value when Entered" column on the "Inventory of Improvements" sheet. 
(3) Making entries for new improvements-purchase for cash.-When new improvements, such as houses, barns, fences, windmills, etc., are brought on the books the entries 
will be made in the same manner as was previously ex­plained to bring on new items of "Equipment." Thus, if a new windmill was set up, the invoice cost of the windmill ($200) might be paid in cash. In this event the entry will be made in the right-hand (credit) "Bank" column showing the amount of the check given in payment of the invoice. The same amount will be shown in the left-hand (debit) "General" column, and will be carried from there to the left side of the "Improvement" account. Later checks might be given for labor in connection with setting up the windmill; such data would be entered in the same way, as the "Cost" of the windmill is the entire cost set up ready 
for use. 
(4) Making entries for new improvements when cash and notes are given.-When a portion of the settlement for a new improvement is made by giving a note, the amount of the note or notes will be entered in the General Journal, in a manner which corresponds closely to that described in conjunction with "Notes Receivable." In the case of only notes being given, when no cash was paid, the amount of the note, or notes, will be entered in both the right-and left-hand "General" columns of the Journal. The amount shown in the left-hand column will then be carried to the left-hand side of the "Improvements" account. The amount shown in the right-hand column will be carried to the right side of the "Notes Payable" account. In the event cash, and notes maturing at different times were given in settle­ment of the indebtedness, the total would be entered in the left-hand "General" column of the Journal and carried from there to the left side of the "Improvement" account. The amount of the cash ($50) given would be entered in the right-hand "Bank" column and each note would be listed in the right-hand (credit) "General" column of the Journal 
($75-$75). The maturity date of each note should be shown in the "Explanation" column. All of the figures in the right-hand "General" column of the Journal will then be carried to the right side of the "Notes Payable" account 
and the information regarding interest and maturity dates will also be recorded in the explanation column of the ledger. 
(5) 
Making entries for new improvements-cash or notes not given.-When improvements are acquired which will not be paid for immediately and no notes are given, the indebtedness incurred should be brought upon the books at once, providing an agreement has been entered into as to the cost of the improvement. Under these conditions the cost of all, or such portion as has been agreed upon, will be entered in both the right-and left-hand columns of the Journal. The amount in the left-hand (debit) column, as in the previous illustrations, will be carried to the left-hand side of the "Improvements" account. The amount in the right-hand (credit) column will be carried to the right side of a new account, the title of which will be the name of the man to whom the proprietor is indebted. This account will be classed as an "Account Payable." 

(6) 
Where a number of payments or settlements arise in connection with a new improvement.-The problem may at times arise in connection with the recording of improve­ment entries which would not present itself in connection with the other accounts; that is, where a well is being dug at considerable expense, a large concrete reservoir, or a house is being built, there may be many entries required to record the different payments or the different arrangements for payment made in conjunction with the particular im­provement. Thus, if a house were being built, there would probably be the original retaining fee to the architect, cost of excavating, the cost of masonry, cost of securing the stone, cost of lumber, plumbing, electric fixtures, etc. Each of these items might be paid with a number of different checks and some might be settled by giving notes. Under these circumstances, it would undoubtedly burden the "Im­provement" account to have such a large number of entries made in it covering the transactions involving one item of improvement. It would also be difficult to keep track of all these items on the "Inventory" sheet, inasmuch as only one column is provided for the cost of improvements. To avoid 


Accounting Procedure for Livestock Ranches 91 
this difficulty it may be desirable to open a new account under the name of the new improvement which is being developed. Thus such an account might be called "New House," "Fence for Stone Creek Pasture,'' "Reservoir on Section," etc. (See lines numbered (6) in illustration.) In this way all of the entries for this particular improve­ment may be "posted" to this particular account. Details regarding the cost of the various phases of the work will then always be available by turning to the account. When the improvement is completed the special account is closed into the "Improvement" account so that the "Improvement" account will show the total cost of this particular unit in a single figure, thus making it a simpler matter to reconcile the book figures with the "Improvement Inventory" sheet. The single figure is necessary in the "Improvement Inven­tory" sheet both to show the total cost of each individual unit and to facilitate the figuring of depreciation at the end of each subsequent year. 
(7) Closing the special account into the "Improvement" account.-When a special account, such as has just been described, is opened to record the various entries necessary for a new improvement, the account may be closed by mak­ing an entry which is equal to the total balance of the ac­count in both the debit and credit "General" column. The debit item will then be carried to the debit side of the "Im­provement" account. The amount in the credit column will be carried to the right-hand side of the special account opened to record the individual items arising during the building of the new improvement. These entries will then close the "Special" account and will bring the item into the "Improvements" account. 
Where an improvement is completely destroyed or be­comes unusable.-Practically all items of improvement will eventually become useless and at such times should be writ­ten off the books. This time may be delayed for many years due to unusually long life, exceptionally good repairs, or a combination of both. Eventually, however, the con­dition will occur and in many instances it may occur in a 
The University of Texas Bulletin 
comparatively short period of time. The manner in which such items are entered on the books depends upon the amount of depreciation which has been written off. In de­scribing the entries required, they will be classified: 
(a) 	
Where the entire cost of the improvement has been written off to depreciation. 

(b) 	
Where only a portion of the cost of the improvement has been written off to depreciation. 

(8) 
Improvement entirely depreciated.-Where the en­tire cost of the improvement has been written off to depreci­ation and the particular improvement is no longer of any usuable value, the books may be cleared of amounts arising from this particular item. In this case, the entry will be made in both the right-and left-hand "General" columns of the Journal for the amount of the original cost of the improvement. As the original cost of the improvement has been completely depreciated, the entire cost will be included in the "Reserve for Depreciation." The figures placed in the left-hand "General" column of the Journal will then be carried to the left side of the "Reserve for Depreciation" account, thus reducing that account by the amount of the Reserve which has been accumulated for this particular item. The figure in the right-hand "General" column will be carried to the right side of the "Improvement" account reducing that account in the same .manner. 

(9) 
Where the improvement is only partially depreci­ated.-Many instances will arise where improvements must be written off the books when they are only partially de­preciated. As a consequence many items of improvement will from natural causes such as wear and tear, obsolescence, etc., become useless before the entire cost has been written off to depreciation. Storms will wreck some items, and fire will destroy others. When these situations arise, a loss has been sustained which has not previously been covered by the depreciation figures. The depreciation that has been brought on the books must, however, be considered. There­fore the entry will involve three points: 


Accounting Procedure for Livestock Ranches 93 
1. 	
Original cost. 

2. 	
The amount of depreciation previously written off. 

3. 	
The current loss which amounts to the difference between the original cost and the amount of depreciation. 


To show the method of bringing this loss on the books, we may assume that a barn costing $5,000 had an estimated life of 25 years; at the end of 10 years it is destroyed by fire. The situation would then be as follows : 
Original cost__ 
___________________________________
__________________________ $5,000.00 
Depreciation (1/25 of $5,000 yearly) $200Xl0_____________ 2,000.00 
Loss due to fire_______________________________________________________________________ $3,000.00 
The only problem now is to clear the books of the amounts carried for this particular improvement and to bring on an entry which will record the loss caused by the fire. Under these circumstances, an entry of $2,000 and one of $3,000 will be made in the left-hand "General" column of the Jour­nal and an entry of $5,000 in the right-hand "General" col­umn. The $2,000 item will be carried to the left side of the "Reserve for Depreciation" account, thus wiping off the accumulated depreciation recorded in that account for the barn. The $3,000 item will be carried to the left side of a new account which will be opened up with the title "Fire Loss." The $5,000 item in the right-hand column will be carried to the right side of the "Improvements" account, thereby relieving that account of the cost of the improve­ment which has been destroyed. 
Entries to be Made When Payment for Loss Is Received from In­surance_ 
In the illustrations given above, we assumed the loss due to the fire was $3,000. It is entirely possible that an owner might have either more or less insurance on the building than the actual loss as shown by his books. The maximum amount of insurance which a man may collect is an amount which will place him in the same position that he was in prior to the time the loss occurred. Thus, the building may originally have cost $5,000 according to the prices prevail­ing at the time it was built, and yet it might be impossible to replace the building for less than twice that amount, due to increases in the cost of labor and materials. Under these circumstances the owner is allowed to carry insurance based on a replacement value, the number of years of use being considered. On the other hand, many people carry insur­ance for less than either present "book values" (cost less depreciation) or "replacement values." 
(10) Where insurance does not cover book loss.-As­suming in the first place that the owner had carried only $2,500 worth of insurance on the barn, and the barn was a total loss, a check should be received from the insurance company for $2,500. This amount will be entered in the left-hand cash column of the Journal and in the right-hand "General" column. The amount shown in the right-hand "General" column will then be carried to the right side of the "Fire Loss" account explained above. The insurance will reduce the fire loss sustained by the owner to $500. 
(11) Where the insurance covers more than book loss.­
In the event insurance is carried for an amount greater than the value as shown by the books, say in this case $4,000 (prices having gone up 33 1/3%), the check received will be entered in the same manner as explained in the last sec­tion. 
Closing the Fire Losa Account. 
The "Fire Loss" account is in no sense an operating ac­count and therefore, the figures should not be confused at any time with those arising through the recording of trans­actions for the purchase and sale of stock or the various ex­penses incurred in running the ranch. This account should, therefore, be closed directly into the "Capital" account. 
(12a) No insurance carried.-Using the figures arising from the previous illustrations, if the owner of the barn had carried no insurance, the amount of the fire loss would have been $3,000. The entry to close this account will be made by placing the $3,000 amount in both the left-and right-hand "General" columns of the Journal. The figure in the left-hand column will be carried to the left side of the "Proprietor's Capital" account. The figure in the right­hand column will be carried to the right side of the "Fire Loss" account, thus closing the "Fire Loss" account and reducing the "Proprietor's Capital" account by the amount of the loss sustained. 
(12b) Insurance carried less than the loss.-In event $2,500 worth of insurance had been carried, the loss, there­fore, being only $500, the entry will be made precisely in the same way, excepting that the loss figures will be $500. 
(12c) In the event $4,000 worth of insurance is carried, the fire loss would be changed according to book figures from a loss to a gain. This gain, however, would not arise because of the fire. Anyone who owns land, buildings, equipment, livestock, or anything else during the period of rising prices will have what may be termed an unrealized profit on these items. When such assets are destroyed under conditions entitling the owner to be recompensed, such recompense would be on the basis of the values exist­ing to the time the assets were destroyed. No profit ac­crues because of the fire. The owner is entitled, if the in­surance is sufficient, to an amount greater than the cost be­cause this amount would be necessary to replace the de­stroyed asset and place the owner in the position in which he was before the fire occurred. In this case, the value of labor and building materials has gone up, so that an in­crease in value had occurred but had not been realized. When the insurance company pays the owner for this loss, he is realizing the increased value to the extent of the pro­portion that the amount of insurance bears to the cost of re­placing the barn. Under these circumstances it may be assumed that it will cost at least $6,666.66 to replace the barn in the condition it was when it was new. The entry on the books to close the "Fire Loss" account will be as follows: 
The amount of $1,000 will be entered in both the left and right 
hand "General" columns of the Journal. 
The amount in the left-hand column will be carried to the left 
side of the "Fire Loss" account, thus closing that account. 
The amount in the right-hand column will be carried to the "Proprietor's Capital" account, thus increasing that account by the amount which had been realized through the increase in value of the barn prior to the time the fire occurred. 
(13) Where only a portion of the improvement is de­stroyed or abandoned.-lnstances will arise where a portion of a building, windmill, reservoir, etc., may be destroyed or for some reason become valueless. Under these circum­stances the entries required will be the same as those de­scribed where the item is completely destroyed with the ad­dition of one step which must be given prior consideration. An estimate must be made of the relative value of the part which has been destroyed and the part which is still useful. Where a portion of a particular improvement is destroyed and this portion makes the balance of the improvement use­less and the reconstruction of the destroyed portion is not contemplated, the entire amount of the original cost and of the accumulated depreciation should, of course, be written off the books as has been previously explained. 
Where a portion of the improvement has been destroyed and the remaining portion can be used independently or where the replacement of the destroyed portion is to take place, the amount written out of the account will cover only the value of that portion which has been destroyed. Thus, if one wing of a building which had cost $20,000 was de­stroyed by fire and the remainder of the building remains intact and can be used, the amount to be written off will equal only the value of the portion which had been de­stroyed. In this case it might be assumed that the part destroyed had an original cost of $5,000, that the building had an expected life of 25 years, and that depreciation had been written off at this rate for 10 years. Under these cir­cumstances the value of the building and of the wing will be as follows: 
Cost of building_
______________ __ _____________________________ ______  $20,000  
Depreciation on entire building (yearly at 4% on $20,000) $800 X 10___________________________________  8,000  
Value of entire building at time of fire____ ________ Cost of wing________________________________________________________ $ 5,000  $12,000  
Less depreciation on wing (yearly at 4% on $5,000) $200 x 10__________________ _____________________  2,000  
Value of wing at time of fire__________________________ __ $ 3,000  3,000  
Present value of building with wing destroyed  $ 9,000  

From the above statement it is obvious that the amount taken out of the "Improvements" account is $5,000. The amount which must be deducted from the "Reserve for De­preciation" account is $2,000, and the difference represents the book loss which was sustained by reason of the fire. Entries will then be made in the left-hand "General" col­umn of the Journal for $2,000 and $3,000, and in the right hand "General" column of the Journal for $5,000. The $2,000 item will be carried to the left-hand side of the "Re­serve for Depreciation" account. The $3,000 item will be carried to the left side of the "Fire Loss" account. The entry of $5,000 in the right-hand column will be carried to the right side of the "Improvements" account. The result of these entries would be to reduce the "Improvements" and the "Reserve for Depreciation of Improvements" accounts by amounts equal to the cost and the accumulated deprecia­tion of the portion of the building which had been destroyed. 
Special conditions to be considered on entering items cov­ering special losses.-The discussion and illustrations given above have been limited very largely to fire losses. Many other losses occur from cloudbursts, hail, cyclones, etc., which will be handled on the books in the same manner as has just been discussed. Problems arise in conjunction with the closing out of the "Loss" account (other than Fire Loss) which must be carefully considered in each individual instance. 
(1) Is the loss one which occurs more or less regularly and should it, therefore, be considered as a part of the regular costs of operating the business? In some parts of the United States a certain amount of damage is done each year by heavy ·snow 
falls, freshets, etc. Under these circumstances a certain amount of replacement must be carried on constantly, and, in many in­stances, these replacements are made in such a way as to materi­ally change the character of the particular asset. Wooden shacks may be replaced by stone; dirt reservoirs may be replaced by concrete; fences built with light insecure posts may be destroyed and replaced by posts sufficiently heavy to stand the strain for a number of years to come. In each of these instances, an adjust­ment of the account would, of course, be necessary and the increased value of the assets should be transferred to the "Im-• provements" account. 
(2) 
If a certain amount of this work is required with a fair degree of regularity, the cost of replacing the portions of the par­ticular assets which have been destroyed should probably be carried as an operating expense. 

(3) 
If, however, the ranch is situated in a country where the type of loss is unusual, or if the loss is sustained in a certain class of improvements which is seldom subject to destruction, the loss should not be considered as an operating loss (see page 94), but should be carried direct to the "Capital" account. 

(4) 
A loss to the dwelling of the owner or other property, used for personal rather than ranch business, would never be an operating loss. Such loss should always be considered as ex­traneous. Another point to be considered is the effect of the loss on the Income Tax Statement. Such losses are always deductible at some point, but it is sometimes a question as to where the deduction should be made; for instance if the ranch is leased, it will depend upon the lease contract as to whether the loss should be taken up on the lessor's return or whether it should be con­sidered as a loss to the owner of the property. 


LAND ACCOUNT 
Very often ledgers will be found which contain an account with the title "Real Estate" or "Land and Improvements." Under these circumstances the values shown in these ac­counts will include both the cost values of land and of the improvements. Justification for such entries is sometimes explained as follows: That the entire property was pur­chased for a lump figure or at so much an acre and that the buildings were thrown in. 
The seller consummating the sale and the buyer making the purchase may each have felt that this was the case. 
What the purchaser really received was the real property composed of real estate and improvements. If the im­provements, such as buildings, wells, windmills, fences, etc., are of little or no value and are not to be used by the pur­chaser, the entire value may be entered in the "Land Ac­count" because the property was purchased entirely for the land, and no consideration was given to the improvements at the time of the sale or afterwards. If this situation is not the case, and there is a reasonable value in the improve­ments which are to be used in operating the property, the improvements are not a part of the land and should be care­fully inventoried and set up in the "Improvements" account at their cost if the cost was specifically stated, or by careful estimation if it was bought for a "lump price" such as in­dicated above. Many ranchmen although careless about maintaining inventories of their cattle, equipment, or im­provements to their property, will have very carefully com­piled maps showing the sections which they own and con­trol, with fence lines, buildings, watering places, school lands, etc., clearly indicated theron. Every rancher should have some such record indicating his exact property, its lo­cation, and its improvements. Such a record does not necessarily have to be elaborate, but it should be maintained and should be drawn up with sufficient care so that all im­portant points are indicated, such as sections or quarters owned outright, with dates of purchase, those which are leased, school lands which are held on deferred payment contracts, with dates of contract, together with fences, buildings, watering places, corrals, streams, gates, etc. This record should be kept up to date. From such a map a list of the cost of the various sections of land which are owned may easily be made up and used as a basis for the book en­try. In the case of land, as in the other items discussed, entries should always be at cost. Cost will not only include the actual purchase price of the land, but should also in­clude such items as legal fees incident to having the title 
transferred, any surveying costs which may have been in­curred and any accumulated taxes which it may have been necessary to pay before the land could be secured. 
(1) Making the original entry for the Land Account.­
Having made up the list of various sections which are owned either outright or on contract and the price which was paid for each section (with the cost of improvements deducted) the original entry can be made on the books. This entry will be made in the same manner as the original entry for Improvements. The total cost value of the land (whether paid or not), will be entered in the left-hand "General" col­umn. A figure showing the amount of the payments which have been made on this land will be entered in the right­hand "General" column of the Journal. Also a figure show­ing the amount which is owed on land purchased will be placed in the right-hand column. Thus, assuming that a man has the following ten sections some of which he owns in full and some of which are only partially paid for: 
Cost Paid Unpaid 
Section 1 -----------------$ 6,400 $ 6,400 
Section 2 ---------------6,400 6,400 
Section 3 ----------------6,400 6,400 
Section 4 ----------------6,400 6,400 
Section 5 7,040 3,520 3,520 
Section 6 ----------------7,040 3,520 3,520 
Section 7 ------------------4,800 1,200 3,600 
Section 8 ------------------4,800 1,200 3,600 
Section 9 ----------------9,600 3,200 6,400 
Section 10 9,600 3,200 6,400
-----·-------­
$68,480 $41,440 $27,040 
The amount entered in the left-hand "General" column of the Journal will be $68,480. This amount will then be carried to the left side of the "Land" account. The amount which has been paid on the land, $41,440, and the amount still due, $27,040, will be entered in the right-hand "Gen­eral" column in the Journal. The amount paid will then be carried to the right side of the "Proprietor's Capital" ac­count. The unpaid portions will probably be covered by a mortgage and will, therefore, be entered on the right side 
of an account, the title of which will be "Mortgages pay­able." (See page 125.) 
There are some ranchers who feel that in justification to both themselves and the Government they should write up the value of their land a small amount each year in accord­ance with the estimated increase in the values of ranch lands. These men are, no doubt, desirous of keeping a reasonably accurate set of books and of turning in complete statements of income to the Government in their annual Income Tax Reports. In general, the statement may be made that neither land values nor the values of any other asset should be written up above the cost figures. The one outstanding exception to this general rule is the pricing of inventories of livestock and farm products at "farm (or range) price." The same conditions do not exist with re­gard to any other item in the asset group. Assume, for instance, that the rancher has constantly written up over 
a series of years the value of his range land; the land that was originally purchased for $5.00 an acre, has been writ­ten up over a series of years to $15.00 an acre; that the land is then sold at a time when cattle prices are very low and range land is a drug on the market. Under these con­ditions the land might sell for $10.00 an acre or less. A rancher would not have realized the profit which he had on his books and in all probability would not be able to recover the amounts which he had paid the Government in taxes on the increased values. If the property was owned by a cor­poration and such increase in land values was carried to surplus, dividends might have been declared, and possibly disbursed out of the fallacious surplus thus created. Under these conditions any creditors whose claims were unpaid at the time the land had to be sold would have a personal claim against each of the directors who had approved the dividend. In all accounting practice the rule should be fol­lowed that no profits should be taken on the books until they are realized. The exception to this rule stated in connec­tion with inventories of farm and ranch products has cer­tain very practical advantages. It must be recognized, 
however, that unless extreme care and conservatism are used in this connection this practice has some very grave dangers. 
Following are some illustrative entries showing the man­ner in which various transactions affecting the "Land" ac­count may be carried on the books. These will be given as follows: 
1. 	
Bringing on the original Inventory. 

2. 	
Purchasing additional sections for cash. 

3. 	
Purchasing additional sections for cash and notes (Mortgage Payable). 

4. 	
Purcl\asing additional sections where a portion of the pur­chase price covers improvements. 

5. 	
Sale of land at a profit for cash. 

6. 	
Sale of land at a profit for part cash, part notes. 

7. 	
Sale of land with improvements at a loss. 

8. 	
Expenses involved in land sales. 


(1) 
For an explanation of the first illustration see pages 100, 101. 

(2) 
Purchasing additional sections for cash.-The entry for the purchase of land for cash is similar to the entries required for the purchase of cattle or improvements. The amount of the check is to be entered in the right-hand "Bank" column and, of course, a corresponding figure placed in the left-hand "General" column of the Journal. The amount shown in the left-hand "General" column of the Journal will then be carried to the left side of the "Land Account," increasing that account by the cost price of the land purchased. In the event any other check were given in connection with the land purchases, such as a check to a lawyer for examining the abstract, the entry would be made in precisely the same way. 


(3) Purchasing additional land for cash and notes.­
Where the land is only partially paid for, notes being given for the balance, the amount which is paid and the amount which is still due on the property must be taken into con­sideration. It probably would be well to explain at this point that notes given for the purchase of land are ordi­narily secured by a mortgage on the land and that they are, 
as a rule, payable at a considerably greater time in the future than notes given to the bank or to merchants for the purchase of supplies, groceries, etc. As a consequence, they are considered as long-time obligations and because of this fact and the fact that they are secured by the mortgage they are classed as "Mortgages Payable" rather than as "Notes Payable," which are short time liabilities. In this 

FIGURE 17 
case, we may assume that three sections of land were pur­chased for $24,000, that $12,000 was paid in cash, and that the balance was carried on a mortgage. In this case the amount of the check is entered in the right-hand "Bank" column of the Journal, the total cost of the land is entered in the left-hand "General" column and the amount of the "Mortgage Payable" is entered in the right-hand "General" column. As in the previous illustration, the cost value of the land will then be transferred (posted) from the left­hand "General" column in the Journal to the left side of the "Land" account. The "Mortgage Payable" will be trans­ferred from the right-hand column to the right side of the account known as "Mortgage Payable." 
L11.nd 
,.  ..  ..  - 
J ....  I  Onen ;,, I,,n,,t~,  , / ,4fo  ••  l/~/  /•  Sec... .  .:io  
Feb  / o  Sec . I/; 1.2.  71 O O•  ••  
/lJtJr .  :z.­ s,c.. II 11 :lo  2~ooo  oo  St!nt .  Jo  Sec .  :1.1.  
1"4.Y  3 /  Sec . .Z/ :Z2 .2 .J .  .Z t, 000  oo  


0 0 
4 /'()  o o  .Ju /v  /0  ,, Sec . 20  .2~ ~00  
l .S  .$f'C' .2 1  





FIGURE 17A 
(4) Purchasing land with improvements.-Here it is assumed that three additional sections are purchased on the same terms as used in the entry given in illustration No. 3, with the exception that certain improvements are included in the purchase. The cost value of these improve­ments would, of course, be taken up on the "Improvements Inventory" sheet. If the property was purchased at a round figure of $24,000, it would be advisable to have the improvements appraised so that there would be no question as to their value. At the same time, the appraisers should be asked for a statement regarding the probable useful life of these improvements. This figure could then be used as 
a basis for the rate at which these values should be depre­ciated at the end of each year. In this case it is assumed that the improvements are valued at $3,000. A statement regarding the useful life would be made in the "Remarks" column on the "Improvements Inventory" sheet. In the Journal, the amount of the $12,000 check would be placed in the right-hand "Bank" column. The cost value of the land and the cost of the improvements would be placed in the left-hand "General" column of the Journal, with the amount of the mortgage being placed in the right-hand "General" column. The value of the land ($21,000) and the value of the improvements ($3,000) would each be car­ried to the left side of the respective accounts ; the amount of the mortgage would be carried to the right side of the "Mortgage Payable" account. 
(5) Sale of land at a profit.-The fact that a profit should never be taken until a sale is made has already been discussed. In this case, it is assumed that a single section of land which had been purchased for $7,000 is now sold for cash for $9,600. The amount of the cash deposited in the bank would be entered in the left-hand "Bank" column; the cost price of the land and the profit realized at the time of its sale would be placed in the right-hand "General" col­umn. The cost of the land ($7,000) would then be carried to the right side of the "Land" account, reducing it by an amount equal to the cost of this particular piece of land. 
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The profit realized would be carried to a special account which may be called "Profit on Land Sales." This ac~ount should not be confused with profit arising from buying and selling of stock as the profit realized ($2,600) from the purchase and sale of the land is not part of the stock busi­ness. This amount represents a separate or extraneous profit, and should, therefore, be kept separate. 
(6) 
Sale of land at a profit-'J)(Lrt payment in cash, part in notes.-In this case it is assumed that another section is sold for the same amount, but that a mortgage is received for a portion of the sale price, that $5,000 in cash is re­ceived and a mortgage was given by the purchaser for the balance. The $5,000 deposited in the bank will be entered in the left-hand "Bank" column of the Journal. The amount of the mortgage will be entered in the left-hand "General" column. The cost of the land and the profit realized by the sale will be entered in the right-hand "General" column of the Journal. The amount of the mortgage ($4,600) will then be carried to the left side of an account which we may call "Mortgages Receivable." The cost of the land ($7,000) will be carried to the right side of the "Land" account. The profit ( $2,600) realized on the sale would be carried to the right side of the "Profit on Land Sales" account. 

(7) 
Sale of land with improvements at a loss.-In this case it is assumed that Section 22 upon which the improve­ments were situated (which had been purchased in illus­tration No. 4) is sold for $9,000, that $5,000 is received in cash and that a mortgage is given by the purchaser for $4,000. The $5,000 cash would be entered in the left-hand "Bank" column in the Journal. The amount of the loss, in this case $1,000, 


Cost of land______________________ $7,000 Plus cost of improvements_________ ___ 3,000 
$10,000 Selling price --------------9,000 
LOSS -----­
' 1000 would be entered in the left-hand "General" column as also would be the amount of the "Mortgage Receivable." The cost of the land and the cost of the improvements would be entered in the right-hand "General" column. The loss sus­tained at the time of the sale would be carried to the left side of an account, "Loss on Land Sales," and the amount of the mortgage would be carried to the left side of the ac­count which might be called "Mortgage Receivable." The cost of the land ($7,000) and the cost of the improvements 
($3,000) would be carried to the right side of their respec­tive accounts. 
(8) Expenses involved in land sales.-In many cases a certain amount of expense is incurred at the time prop­erty is sold. Such expenses may be commissions, cost of bringing the abstract down to date, surveying costs, title insurance, etc. In this case it is assumed that a commis­sion of 5% has been paid on one of the sales previously il­lustrated. In all probability a check will be given to the agent for the amount of his commission at the time the sale was completed and the original payment received. The check in this case would amount to $480. The $480 would be recorded in the right-hand "Bank" column of the Journal and in the left-hand "General" column. The amount in the latter column would be carried to the left side of the ac­count "Profit on Land Sales" if it referred to one of the sales on which a profit was realized. In event a commission was incurred through the sale of property which was sold at a loss, the item shown in the left-hand "General" column of the Journal would be carried to the left side of the ac­count "Loss on Land Sales." 
Another point that should be mentioned at this time is in connection with the situation which arises where land and improvements are purchased in a manner similar to illustra­tion No. 4 and the property is held for several years. Aft­erwards it is sold. Under these circumstances the "Land" account would be handled in the same manner shown in the above illustration. The "Reserve for Depreciation" ac­count would have to be taken into consideration as well as the "Improvements" account, for depreciation would have been written off on these assets during the intervening 
years. The entry required under these circumstances to write off the amount of the improvements, and the deprecia­tion would be exactly the same as that illustrated on page 
92. 
OTHER ASSETS 
Many ranchers have interests outside of what may be termed as "strictly ranch business." The matter of securi­ties has already been discussed. Other items might be an interest in stores which are operated on the ranch property, or truck lines operated as separate businesses for the bene­fit possibly of the ranch and adjoining property holders. If an amount has been invested in such propositions, this amount should be carried in a separate account in the Ledger. Such activities will in many instances be carried as a separate business with a separate set of books. Often­times, the accounts of such enterprises are carried in a rather haphazard fashion without any real knowledge or control as to whether they are making profit or not. In­variably, however, the ranch owner feels very certain that they are making a profit. Most accountants who have gone over the records of such propositions know that this idea is incorrect; for, when the transactions are analyzed, it is found that a great many activities such as these are oper­ated at a loss to the owner. Some times these losses will amount to astounding sums for the volume of business which is carried on. In many instances, stores are started in a very small way and little money is required to carry them along. Gradually the amount invested in stock tends to increase; frequently the stock which is carried is pur­chased on the general ranch account and is absorbed and confused with the operations of the ranch itself. It is not the purpose of this treatise to go into a system of accounts for the operation of mercantile or other establishments, but to bring out the manner of handling the investments, be­cause of the fact that many ranchers have considerable in­terests outside of the ranch property. Illustrations will be given of the manner in which these items may be carried 
Accounting Procedure for Livestock Ranches 109 
on the books when the operations of the outside business are not intermingled with those of the ranch. In this con­nection, the following entries will be shown : 
1. 	
The turning over for store purposes of a building now exist­ing on the ranch property. 

2. 	
Cost of remodeling such store. 

3. 	
Transferring to a separate account in the bank an amount sufficient for carrying on the store business. 

4. 	
Taking up the profit shown by the statements rendered by the store. 

5. 	
Receipt of money from the store. 

6. 	
Taking up losses sustained through the operations of such store. 



FIGURE 18 
.  
Feo.  /J­ (JJ  /, ooo  00  h•·  I  15)  / 00  00  
A -r .  IS  (.2)  7~o  Oo  J • •.  2.r  (') L11.J.J~S  .25•  . 
 
IS  (J)  I 10 0  ..  
·'--·  .,,­ r.u1 ,P,.,,,.,.  _2j-,,  ..  


~---------"S.t oiJ-• l',-of/t .J 

I 11 

st,re l.ou-.J 

(~
IJ·:r:1 II"ll I I 11 I 
FIGURE 18A 
(1) Transferring the value of a building to the store ac­count.-In this, as in the entry immediately following, the purpose is to set up in one account the value of assets used in the particular activity carried on in connection with, but not as a part of, the ranch business. In this case, the build­ing which is to be used as the store is no longer available for ranch operations; therefore, the value will be entered in the left-hand (debit) "General" column and carried from there to the left side of the "Store" account. The same fig­ure is put in the right-hand (credit) column of the Journal and carried from there to the right side of the "Improve­ments" account, thus reducing that account by an amount equal to the cost of the building no longer available for ranch operations. In the event that this building had been carried on the books for some time and as a consequence depreciation had been charged off on it as on the other im­provements, the amount of the depreciation for this par­ticular asset which had been placed in the "Reserve" ac­count would have to be considered. Thus, if the building had originally cost $1,500 and had an estimated life of 25 years, 15 of which had expired, the entry would be, 
Store ----------------------------------------------------------$1,000.00 
Reserve for depreciation_______________________ 1,500.00 

Improvements ------------------------------$2,500.00 
These figures would all be placed in the general columns and carried to their respective accounts in the manner pre­viously explained. At the time the second entry is made a corresponding notation would be made on the "Improve­ments Inventory" sheet. 
(2) 
Remodeling the building.-The cost of remodeling the building so that it might be used for store purposes might or might not be paid directly from ranch funds. In the event that it was, one or more checks would be required to cover the cost of the required changes. If such checks were issued, the amounts would be placed in the right-hand (credit) "Bank" column and in the left-hand (debit) "Gen­eral" column, from which they would be carried to the left side of the "Store" account. 

(3) 
Transfer of funds.-It would, of course, be neces­sary for the store to have some funds with which to operate the business. It is assumed here that $1,000 is taken from the ranch account and advanced to the store for this pur­pose. The entries would be made and carried out in the same manner as was explained in entry No. 2. 

(
4) Taking up the profit.-It is assumed in all of these entries that the store is carrying a separate set of books, which may be kept in the same office and in conjunction 


with the regular books of the ranch. The entire procedure will, however, be simplified if the store accounts are not confused with those of the ranch. At the same time, all operations of the store accounts should be carried on so that they will be in accordance with the general ranch accounts. Where this procedure is followed all money and property furnished to the store will be recorded in the manner shown in the previous illustrations. At the end of the accounting 
period, the store will close its books separately and apart from the ranch books. If the store made a small profit, it would mean an excess of assets over liabilities in the store accounts by the amount of that profit. The book value of the store business to the ranch has increased by the amount of that profit. As a consequence, the asset account on the ranch books which we are calling "Store" should be in­creased by this amount. To record this change, the amount of the profit ($250.00) is placed in the left-hand (debit) and right-hand (credit) "General" columns of the Journal. It is then carried from the debit column to the left side of the "Store" account and from the credit column to the right side of a new account which will now be opened under the title of "Store Profits." 
(5) Transfer of funds from the store account to the ranch account.-The last entry simply recorded the increase in the value of the store business because of the profits re­sulting from its operations. In this entry it is assumed that it is possible for the ranch to withdraw a small amount of cash from the store business. At the time the cash is received, it is deposited in the bank and will reduce the book value of the store business by that amount. There­fore, the amount received will be entered in the left-hand 
(debit) "Bank" column and in the right-hand (credit) "General" column, from which it is carried to the right side of the "Store" account. 
(6) Taking up a loss.-Entry No. 4 assumed that the store business had been operated at a profit. In this case, it is assumed that a loss has been sustained in the operation 
of the store. Under these circumstances the excess of as­sets over liabilities has been reduced by the amount of the loss ; therefore, the book value of the store business will be lessened by that amount. The recording of that condition will be exactly the reverse of entry No. 4. The amount of the loss will be entered in both columns of the general jour­nal. The figure in the left-hand (debit) column will be car­ried to a new account which in this case would be opened under the title "Store Loss." The figure in the right-hand 
(credit) column will be carried to the "Store" account thus reducing the balance of that account by the amount of the loss. 
THE LEDGER CONTINUED-LIABILITY 
ACCOUNTS 

Up to this point the discussion of ledger accounts has been limited to those accounts which carry the values of the things owned by the business. The liability accounts show the amounts which are owed by the business. Although liability accounts are fewer in number their general classi­fication is not unlike the classification of the asset accounts. The problems arising in the matter of handling liability accounts are somewhat different. 
In the discussions of asset accounts, attention (other than the explanation of the mechanics of making the en­tries) was devoted mainly to the principles which would develop proper valuations. The amount of each liability is as a rule definite. There is the problem in all businesses of being sure that all of the outstanding indebtedness has been recorded in the books. This difficulty is materially increased when accounts are kept under the conditions pre­vailing on many, if not most, of the ranches. A correct recording of liabilities is absolutely necessary if the state­ments taken from the books are to be of value either in establishing credit, determining the net worth of the owner, or definitely to prove the conditions portrayed by the In­come Tax statements which must be presented from year to year. This is the case because the net worth can only be determined by subtracting from the total value of the as­sets the entire amount of outstanding liabilities. The dif­ference represents the value of the ranch to the owner or 
owners. 
ACCOUNTS PAYABLE 
Like "Accounts Receivable," the term "Accounts Pay­able" does not apply to a specific account but to a series of accounts opened under the names of various persons or con­cerns. In Accounts Receivable, the balance of each account represented an amount due the ranch business from the person or concern under whose name the account was car­ried. In Accounts Payable, the balance of each account represents the amount which is owed to the creditor under whose name the account is carried. As in the case of Ac­counts Receivable the amounts in these accounts represent indebtedness not covered by formal promises to pay in the form of notes. 
Because of the somewhat generally adopted procedure of making no accounting records until checks are returned from the banks, the number of recorded liabilities will of necessity be materially reduced. It has been previously in­dicated that this condition will gradually change. For the time being, it is a condition which must, in general, be ac­cepted even though it is recognized as bad business pro­cedure. 
Regardless of this general practice which has been built up by custom, the more important items of indebtedness should be recorded. Where care is used in matters of this kind, all persons affected will be benefited. A list of illus­trative entries and their explanations are given below. 
(1) 
Purchase of equipment.-In this illustration, it is assumed that equipment has been purchased from W. E. Cox. The total value of the equipment was entered in the left-hand (debit) column of the Journal and carried from there to the "Equipment" account. The same figure is also entered in the right-hand (credit) column of the Journal and carried from there to the right side of an account which should be opened under the name of W. E. Cox. This ac­count shows the amount due Mr. Cox. The items pur­chased should be entered in the explanation column and a record should also be made for each of these items on the "Equipment Inventory" sheet. 

(2) 
Expense where special column is provided.-This entry illustrates the recording of an item of expense. The cost of the fence wire purchased for repairs would be en­tered in the right-hand (credit) "General" column of the Journal and from there would be carried to the right side of an account opened for R. L. Mott. This account shows 


BANK  JOURNAL GENERAL  I  .  ~ ~ O')  
OATE Kllf1£ (/) lf•r· /:I £tJu/ome,,t WE . r.ox (.>l IS RI . 1'1otl (.V I A.,,.. I IN. l'..; ... -r IWJ IMa• 1 WE.(,,,  EXP/.ANAT/ON G..o 0/0111 /Jri//Qr l?,,.ke ,:,,,ce. Wire fa,. He.DIJil'.s 5,-.,.,  OR. DE!'rJS/TJ  CR. WJrH · 01/AWALS ., ...  1 ~.., ~­'°'''  /)fl. " ' -­·­- Cfl. so /An ,. -­,_. ·­ I  Rt/31/RS DR. 'A• ,__  ' /1 I  OTHER. EXPENSE ACCOUNT ,.,;. Antdwnt /tfisce //o,.,• "" is-I An  \  ~ (1:> ~ ... ~ (1:> ~ ~ c--.. ~ ~  
~  
~ ..... (1:> ""'" ~·  
.  ~  
I  

FIGURE 19 
Accounting Procedure for Livestock Ranches 117 
the amount due to Mr. Mott. The same figure would also be carried to the "Repairs" column in the general journal so that it would be included in the total of that column. 
FIGURE 19A 
(3) Expense where special column is not provided.­Effort has been made to include columns in the journal for all of the more ordinary expenses which arise in ranch operation. This entry illustrates an expenditure for an item which is charged to an expense account for which there is no special column. The cost of the sign would be entered as in the previous cases in the right-hand (credit) 
w. £  c••  
..  
Mo•  (M)  !To  ..  ""'"·  1i  (JJ  /So  ••  

RL /"Iott 
. 
UI 
/(JO
1'14r 
..
/S 
(31
I 
/S 
..
A­
"General" column of the Journal and carried from there to the right side of an account which would show the amount due I. M. Painter, this account being opened under Mr. Painter's name. The same figure would then be car­ried to the "Other Expense" column with the notation in the space provided that it was to be charged to the "Miscel­laneous Expense" account. The figure will then be carried from there to the left side of this account. 
(4) 
Record of payment.-When any liability is paid, a check should always be drawn for the amount of the pay­ment. In this case, it is assumed that the amount due to 

W. 
E. Cox for the purchase of the equipment illustrated in entry No. 1 is to be paid. The amount of this check should be entered in the right-hand (credit) "Bank" column and in the left-hand (debit) "General" column from which it will be carried to the left side of the account which was opened for W. E. Cox, thus balancing that account. If a partial payment had been made, say $75.00, it would have been entered in the same way. The difference between the figures shown on the two sides of the account would then indicate the amount still due Mr. Cox. 


NOTES (BILLS) PAYABLE 
A note payable, like a note receivable, is a formal written promise to pay a debt. The note should, and will in most cases, be made on a regular printed form which conforms to the requirements of the negotiable instruments law: 
It must be in writing and signed by the maker (the one who has agreed to make the payment). 
It must be for a specific or determinable amount. (The neces­sary information must be given on the note so that the amount may be determined.) 
It must have a specific or determinable date of payment. (The necessary information must be given on the note so that the date may be determined.) 
In the case of a note receivable, the person who is in­debted to the business will, as a rule, be the signer although in some cases that person may endorse a. note signed by another. Notes payable, as such, are always signed by the rancher or his authorized agent. Notes receivable, the amount of which is carried in the "Notes Receivable" ac­count, should always be in the hands of the rancher unless they have been passed on by endorsement or have been pledged as collateral. 
The notes payable will always be in the hands of the creditor or the party to whom they have been endorsed. 
The term "Notes Payable" in accounting terminology is generally considered as including only "short time" obli­gations. By "short time" obligations is meant notes which will fall due within the next accounting or fiscal period, which in most cases will be one year. 
In the latter part of the last century and the early part of the present century, there was a sentiment against writ­ten evidences of debt known as "Bills" payable. At present this sentiment is not general in the matter of "Notes" pay­able, particularly if the notes are largely in the hands of the banker. It is frequently possible to effect considerable saving in making purchases for cash. The cash may in many instances be secured from the bank. Where the sav­ings of cash over credit purchases more than offset the interest charged, it is considered good business to handle transactions in this way. Where notes are given too gen­erally, they do, of course, create a questionable financial condition. For this reason it is well to set up the notes payable according to the following classification: 
Notes Payable for: 
Bank loans Cattle purchases Supplies Equipment Land 
Little attention is given to matters of this kind in the banker-rancher relationships in good years in the livestock business. As prices decline and conditions tighten, how­ever, it may be necessary for many bankers to rediscount some of the ranch paper which they hold. With the very general trend toward a more critical analysis of borrowers' statements, the livestock banker who has notes supported by properly prepared balance sheets, showing a healthy financial condition on the part of the borrower, will find this paper looked upon with favor. Notes not supported in this manner will frequently cause the banker considerable embarrassment, if not actual loss. 
It is improbable that many of the individual ranchers would have a large number of notes outstanding, or that these notes would make necessary the use of all sections given in the preceding classification. Such notes as there are should be shown on the balance sheet in this manner, although they may be carried in one account in the ledger. Where the number of notes is not large, as will usually be the case, the "Notes Payable" account may be used as a "Note Register" in the manner described for "Notes Re­ceivable." The following illustrations are carried out with the "Notes Payable" account used in this way. 
(1) 
Purchase of cattle.-The first illustration shows the entry necessary to record the purchase of cattle where the entire purchase price of the cattle is included in a six month's, 6% note. The amount of the liability covered by the note is recorded in the right-hand (credit) "General" column of the Journal and from there is carried to the right-hand side of the "Notes Payable" account. The same figure is placed in the column provided for livestock pur­chases with the notation that it was cattle which were pur­chased. This amount will then be carried to the left side of the "Cattle Purchases" account. The record will, of course, be made in the proper columns of the "Cattle In­ventory" sheet, showing the kinds of cattle which have been purchased. 

(2) 
Purchase of repair material.-This entry corre­sponds to the entry carried under the same reference (No. 2) in the "Accounts Payable" section. It is assumed that $100.00 worth of fence wire was purchased for repair pur­poses. In this case a note was given, rather than as in the 


JOU!f.NAL 


FIGURE 20 
last case carrying the amount to an open account. A jour­nal entry will be made in exactly the same manner except that the space provided for the name will show that a note has been given. The figure shown in the right-hand (credit) "General" column of the Journal will, therefore, be carried to the right side of the "Notes Payable" account. 
(~  
Ju fv  I  (7J  '·'"" 00  .ldn.  /<) IA.B t'oM -',,,_ ~ (j(  ""'"'  oo  
11••  I  <.n  No  oo  ,Fe/,.  I  (,, IA-1 !'f.tt ­ .:In,• . (§  7~  /00  - 
/'/a•  ,,  w  /, "0 0  ..  (.!! ,~­tfn< #Id BA ,,,,  '"'l.t".s.,,  ~ #oo  ..  
Aor.  I  W.E. c.,  ,,..o. ~ ' %  /00  oo  
. 11.v  "  ('J !f,.Jt .lln1 Bk  1otl,oJt!'I';,  Joo  00  
Ju/v  I  [1) A.8(,.;:  ,,,," @'""  4. •o o  ..  

FIGURE 20A 
(3) Notes given to the bank.-Most ranchers handling any considerable amount of cattle find it necessary to bor­row from the banks. In this case, it is assumed that the rancher went to the bank and signed a note for $1,000 with the understanding that the interest was to be paid at the time the note became due. The bank would, under these circumstances increase the balance of the rancher's ac­count by the amount of the note. This entry is recorded on the rancher's books by entering the amount in the left­hand (debit) "Bank" column where it would correspond to a regular deposit and in the right-hand "General" column, from which it would be carried to the right side of the "Notes Payable" account. In some cases the bank will dis­count the rancher's note; that is, the amount of the interest will be deducted when the note is signed. If the note is dis­counted the amount of the bank deposit would be the face of the note less the interest for the time for which the note is to run. In that case, where the bank discounts the note, the entry in the left-hand (debit) "Bank" column would be $980.00. The entry in the right-hand (credit) column would be just the same ($1,000.00). The difference of $20.00 would then be carried to the "Other Expense" col­umn with the notation that it was an interest item. That figure would then be posted to the left side of the "Interest Expense" account. 
(4) 
Note given in settlement of an account payable.­In this case, it is assumed that the Account Payable opened under the name of W. E. Cox (entry No. 1, Figure 19) is to be closed by giving Mr. Cox $50.00 in cash and a note for the remainder of his account ($100.00). The amount of the check for the payment would be entered in the right­hand (credit) "Bank" column and the amount of the note would be recorded in the right-hand (credit) "General" column from which it would be carried to the right side of the "Notes Payable" account. This transaction will close Mr. Cox's account; therefore, the sum of the two items, $150.00, would be entered in the left-hand (debit) column of the Journal and carried from there to Mr. Cox's account in the same manner as illustrated for the cash payment 

(entry No. 4, Figure 19). 

(5) 
Payment of note and interest.-At the time a note becomes due, it will frequently be necessary to pay both the amount of the note and the interest which has accrued up to that time. This illustration shows the entry necessary for the payment of the note given to R. L. Mott (entry No. 2 above). The amount of the check will be for the face of the note plus the interest. This amount will be placed in the right-hand (credit) bank column and the amount of the note ($100.00) will be placed in the left-hand (debit) "General" column, from which it will be carried to the left side of the "Notes Payable" account. The amount of the interest will be entered in the "Other Expense" column with the notation that the expenditure is to be charged to the "Interest" account. It would then be carried from this column to the left side of the "Interest" account. 

(6) 
Partial payment of no"te and balance renewed.­The nature of the banking business is such that the major­ity of the loans which are made to customers must be for a relatively short length of time. Notes payable to banks are, therefore, usually made for thirty, sixty, or ninety days. So long as deposits keep up and the banker is satis­fied with the credit of the borrower, such notes may as a rule be at least partially renewed at the time they become due. It is always customary at such times to pay the interest and the old note is cancelled and a new note is signed. This entry illustrates the payment of $500.00 and the ·interest on the note which was given to the bank 


(entry No. 3 above). The amount of the check covering the payment plus the interest would be entered in the right­hand (credit) "Bank" column. The amount of the new note would be entered in the right-hand (credit) "General" column, from which it would be carried to the right side of the "Notes Payable" account. The amount of the interest would be carried into the "Other Expense" column with the notice that it is an interest payment and will be carried from there to the "Interest" account. The amount of the old note must now be taken off the books. An entry is, therefore, made (in this case $1,000) in the left-hand 
(debit) "General" column, and the amount carried from there to the "Notes Payable" account. 
(7) Renewal of note, no payment other than interes"t.­Where it is impossible to make payment on a note, the holder of the note may agree to extend it for some time be­yond the original agreed time of payment. Under these circumstances, as in the case of partial payments, it is better practice to make out a new note than to deface the old note by showing a change of payment date. Accrued interest should also be paid at this time. It is assumed here that the rancher was unable to pay the $6,000 note which was given at the time the cattle were purchased 
(entry No. 1 above) and that an extension of time is given for three months. The old note is cancelled. To record this transaction, the amount is placed in the left-hand (debit) "General" column of the Journal and carried from there to the left side of the "Notes Payable" account, on the line upon which the entry of this note was originally made. The amount of the new note ($6,000) is entered in the right­hand "General" column of the Journal and carried from there to the right side of the "Notes Payable" account. A check is given for the interest. The amount of the check is entered in the right-hand (credit) "Bank" column and also in the "Other Expense" column with a notation that the payment was made for interest, and it is then carried from there to the "Interest Expense" account. 
MORTGAGES PAYABLE 
In accounting and financial terminology, "Mortgages Pay­able" are considered as long time liabilities whereas "Notes Payable" are considered as short time liabilities. In real­ity this term "Mortgages Payable" is not accurate. The mortgage does not as a rule represent the liability. It is an instrument which by its terms conveys the title of the property to the mortgagee (the person who receives the mortgage). The mortgagee holds this title until the mort­gagor (the person giving the mortgage) fulfills his contract to make certain payments, represented by one or more notes. According to the ordinary stipulation, the mort­gagee must relinquish the title as soon as the payment or payments have been made. The mortgage then is not the evidence of the debt. The notes are the evidence of the debt, and the mortgage is the security for the notes. 
Mortgages may be held by creditors on both real property (roughly considered according to our classification as Land and Improvements) or on personal property (roughly con­sidered according to our classification as "Equipment"). As a rule, the term "Mortgage Payable" on a balance sheet refers to amounts owed on real property. The distinction as to whether this liability should be classed as a Mortgage Payable or a Note Payable is whether the indebtedness falls due within the coming year or at some later time. If the debt or any portion of it, such as certain serial payments, falls due within the coming year following the date of the balance sheet, the amounts which become due should be considered as "Notes Payable," which are short time lia­bilities. 
From the preceding statement it might be considered that all mortgages, if the payments did not fall due within the coming year, could be carried as one item on the balance sheet. This is not the case. A distinction should be made between the mortgages on personal property and those on real property. Each amount should be shown separately on the balance sheet. Real property in most cattle sections is increasing in value. As a consequence the security be­hind the note is increased. Because of this fact it is fre­quently possible either to extend the payment date, if it is found impossible to make the payment, or to substitute another loan for the present one. On the other hand, per­sonal property seldom increases in value. Automobiles and machinery begin to decline in value the day they are pur­chased and put to work. The holder of notes secured by a mortgage on this kind of property must insist upon their payment, or his security will become valueless; therefore it is seldom possible to secure a new loan. In those few cases where it is possible, the interest together with the special fees, commission, etc., constitute an almost prohibitive bur­den. Many articles are purchased on deferred payment con­tracts or by allowing the seller to hold a mortgage on the 
property. It is no particular reflection to purchase equip­
ment in this manner providing it can be used to sufficient 
advantage to justify the expenditure plus the interest 
charges, etc. It is essential, however, that the payments be 
made as they fall due. 
When mortgages are recorded in the books of account an 
explanation should be made of all the pertinent facts; thus 
if a mortgage is given as security for a series of notes, the 
amount, due date, and interest rate should all be made a 
matter of record in the accounts. 
The following are illustrative entries: 


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FIGURE 21 
(1) Purchase of land-part payment in cash.-In this case, it is assumed that three sections of land are purchased for $24,000, one-half of which is paid in cash. Six notes are signed for the balance, secured by a mortgage on the sections which have been purchased. The amount of the check is placed in the right-hand (credit) "Bank" column. The purchase price of the land ($24,000) is placed in the left-hand (debit) "General" column and the unpaid amount covered by the notes ($12,000) in the right-hand (credit) "General" column. The purchase price of the land will be carried from the debit column of the Journal to the left side of the "Land" account. The unpaid portion will be carried from the credit side to the right side of the "Mortgages Payable" account. The "Mortgages Payable" account, like the "Notes Payable" account, may have the entries made in such a manner that it can be used as a register for the notes which are secured by the particular mortgage. In this case it will be observed that every note is listed sepa­rately with its due date. 

FIGURE 21A 
(2) Purchase of equipment-part payment in cash.-In 
this case, it is assumed that a $2,000 tractor is purchased and $500 has been paid in cash. The entry for the check is made in the right-hand (credit) "Bank" column, the pur­chase price of the tractor being placed in the left-hand (debit) "General" column, the amount of the liability for 
the unpaid portion being placed in the right-hand (credit) "General" column. The purchase price of the tractor will then be carried to the left-hand (debit) side of the "Equip­ment" account (record also being made on the "Equipment Inventory" sheet) and record of the liability carried to the right side of the "Mortgages Payable" account where each note will be listed separately. The notes secured by this mortgage are recorded in the same account with the notes secured by a mortgage on real property. It was previously stated that a distinction should be made between the liabil­ities covered by mortgages on real and personal property. This fact is true, but if there are only one or two mort­gages and full explanations are made in the ledger account regarding each one, it is unnecessary to open separate ac­counts. When a balance sheet is drawn up these items should be listed separately even though they are carried in the same account. 
(3) Transferring items to notes payable.-Only items covered by mortgages which will not fall due within the coming fiscal period should be carried under the classifica­tion of "Mortgages Payable." As a consequence, the amounts of those notes which are to fall due within the coming fiscal period should be transferred from the "Mort­gages Payable" account to the "Notes Payable" account where they will be considered in the status in which they now fall, as current liabilities. This entry illustrates such a transfer. The amount of the first note on land and the first two notes on the tractor all of which fall due within the coming fiscal period are transferred from the "Mort­gages Payable" account to the "Notes Payable" account. Therefore, the total amount of these notes is entered in both general columns of the Journal, full explanation of the notes which are transferred being placed in the space pro­vided. Figures from the left-hand (debit) "General" col­umn will then be carried to the left side of the "Mortgages Payable" account. In making the entry, however, detail will be shown in the ledger so that the debit entry will show opposite the listing of each note which is transferred. The figure in the right-hand side of the general column will be transferred to the right side of the "Notes Payable" account and the notes will then be listed in that account so that easy reference may be made to them. 
(4) Payment of note.-This entry is included at this point for the sake of completeness. It corresponds with entry No. 5, Figure 20. The first note due for the purchase of the land is now paid with the interest which has accrued during the current year. The amount of the check, $2,120, is placed in the right-hand (credit) "Bank" column; the amount of the note is placed in the left-hand (debit) "Gen­eral" column and carried from there to the left side of the "Notes Payable" account where it is recorded on the line given to this note when it was transferred from the "Mort­gages Payable" account (entry No. 3). The amount of the interest is carried into the "Other Expense" column with the notation that it is an interest payment and will be taken from there to the left side of the "Interest Expense" ac­count. 
THE LEDGER CONTINUED-NET WORTH OR PROPRIETORSHIP 
From the standpoint of the owner, the "net worth," "cap­ital" or "proprietorship" accounts (each of these terms being used in a somewhat similar sense) are the crux or focal point of account keeping. These accounts show the net changes in the value of the ranch business from year to year. This year to year change is, in general, based on the results of actual completed transactions. That is, no profits have been brought on the books which were not the results of actual sales, and, as rule, losses will not be re­corded until realized. In the discussions of the preceding ledger accounts it will be observed that there are some ex­ceptions to this general statement.1 A critical discussion of the accounting theory and principles surrounding each of these points would require more space than may be de­voted to it in this type of publication. The general rule is sound and may be taken as a basic fact. 
The preceding statement should not be interpreted as in­dicating that the year to year changes in the "net worth" or "capital" accounts in any way represent the profit or loss realized on the ranch business. This idea is incorrect because personal withdrawals or additional investments of the owner or owners will affect the amount of the "net worth" as well as the profits realized or losses sustained from the operations of the business. Thus, assume the capital accounts showed a net worth of $100,000 at the close of 1929. During the year 1930 the ranch operations resulted in a net profit of $15,000. During that year the owner may have withdrawn for living, traveling, school ex­penses, etc., for himself and family $20,000. The net re­sult would amount to a decrease in the value of the ranch 
business. 
isuch as valuing livestock at ·range prices. 
The University of Texas Bulletin 
Net worth January 1, 1930_______
_____________________ $100,000.00 Add : Profit from ranch operations January 1, 1930, to January 1, 1931__________ 15,000.00 
$115,000.00 Deduct: Personal withdrawals_________________________ 20,000.00 
Net worth January 1, 193L________________________ $ 95,000.00 
In the same way the operations of the ranch property may show a very small return or even a loss over a given year but at the end of that yiear the net worth of the busi­ness may be greater due to additional investments made by the owner or owners, thus: 
Net worth January 1, 193L_________________________ $ 95,000.00 Add: Profit from ranch operations January 1, 1931, to January 1, 1932__________
_ 2,000.00 
$ 97,000.00
Add: Additional investments_____________________________________ 22,000.00 
Net worth January 1, 1932__________________________________________ $119,000.00 
Correction of entries brought on the books during pre­vious years would also affect the "net worth" accounts. If the corrections increased the value of the assets or decreased the liabilities, the net worth would be increased. If the assets were decreased or the liabilities increased, the net worth would be decreased. 
At this point it is evident­
1. 	
That the net worth accounts show the value of the business to the owner or owners at the close of each year. 

2. 	
That the differences between their balances at the beginning and at the end of the year do not necessarily indicate the profits or losses arising from the year's ranch operations. 

3. 	
That to the net worth at the beginning of the year should be 


added: 
(a) 	
Profits from the operations for the year. 

(b) 	
Additional investments by the owners. 

(c) 	
The amount of any adjustments which increase assets or decrease liabilities. 


4. That from the above items, or any of them, should be deducted: 
(a) 	
Losses suffered from the operations of the ranch busi­ness. 

(b) 	
Withdrawals of the proprietors. 

(c) 	
The amounts of any adjustments which decrease assets or increase liabilities. 


The ownership of businesses in this country is practically 
limited to three forms, namely: Individual ownership, Partnerships, Corporations. 
Each of these forms of ownership meets certain condi­tions, has certain distinct legal problems and, as a conse­quence, the accounts of each are handled somewhat differ­ently. The general points regarding net worth apply in all types of ownership. In succeeding paragraphs, some of the specific points regarding the accounting for each form of ownership will be brought out. 
INDIVIDUAL OWNERSHIP 
The most common form of ranch ownership is that of the individual proprietor. The accounting and other prob­lems of the individual proprietor are much less involved than those of the other two types of ownership. 
As a rule only two net worth accounts are used in the books of a business run by an individual owner. They are the proprietor's "Capital" account and his "Personal" ac­count. When the books are opened the difference between the total of the net assets and liabilities will represent the value of the ranch business. This amount will be credited to the "Capital" account. During the year most ranchers will be withdrawing sums, more or less regularly, for personal use. These amounts will be entered in the personal columns of the Journal (see Figure 10). The totals of these columns will be posted to the personal account at the close of each month. At the end of the year the net profit or loss will be transferred from the "Profit and Loss" account (see Figure 22) to the "Personal" account. If a profit has been realized the entry will be made on the right (credit) side of the "Personal" account. If a loss has been sustained the entry will be made on the left (debit) side of the ac­count. The balance of the "Personal" account will then be transferred to the "Capital" account. If profits exceeded withdrawals, there would have been (barring other items) 
a net increase of proprietorship or net worth, and the entry would be made on the right (credit) side of the "Capital" account. If losses had been sustained or if the withdrawals had exceeded the profits, these factors would tend to create a decrease of proprietorship. The entry would, therefore, be made on the left (debit) side of the "Capital" account. 
The following illustrations show how the records affect­ing the proprietor's capital and personal accounts may be made in the journal and taken from there to the ledger. 
(1) Opening the books.-The entries are shown here which might be made when a new set of books is opened. The amount of cash on hand would be entered on the left­hand (debit) side of the "Bank" column and would there­fore be included in the total of that column which will later be carried to the left (debit) side of the "Cash" account. The amounts of the other assets are entered on the left 
(debit) side of the "General" column, each item being car­ried (or posted) individually to the left (debit) side of the respective asset accounts. 
The reserve for depreciation of improvements and the various liability accounts are entered in the right (credit) "General" column. Each item will then be carried to the right side of the respective accounts. The difference be­tween the total assets and total liabilities plus the reserve for depreciation represents the book value of the business to the owner, in this case $110,900. This amount would be the opening entry to capital and would be carried to the right (credit) side of the capital account. 
(2) Personal withdrawals.-At various times it is nec­essary for the proprietor to withdraw funds from the busi­ness for personal use. This entry illustrates the with­drawal of cash from the bank for the proprietor. The amount of the withdrawal will be placed in the right­hand (credit) "Bank" column and will be included in the total of that column. At the end of the month, this total will be posted to the right (credit) side of the "Cash" ac­count. These figures will also be placed in the left-hand 
(debit) "Personal" column, where they will be included in the total of that column, this total being carried at the end of the month to the left (debit) side of the "Personal" ac­count. In this case, the $50.00 illustrated is included in the $350.00 posted to the personal account at the end of 
JOU!fNAL 

FIGURE 22 
January. It is assumed that had the entire month's trans­actions been illustrated the total of the (debit) personal column would have amounted to this figure. 

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FIGURE 22A 
(3) Additional investment.-A proprietor frequently has other assets than those shown on the ranch books. In this case it is assumed that the proprietor, having cash which is not included in the ranch business, found it ad­visable to increase the amount of cash in the ranch account. Therefore, a deposit was made from his personal funds. This deposit would increase cash and increase capital. The entry is made in the left-hand (debit) "Bank" column and in the right-hand (credit) "General" column. The amount in the bank column is included in the total of that column and the amount included in the "General" column is carried as an individual item to the right-hand (credit) side of the proprietor's capital account. 
(4) Closing the profit into the personal account.-The amount of the profits for any given year is determined by summarizing the balances of the operating accounts in an account known as "Profit and Loss." The final balance of this account, if it is a credit, represents a profit for the current period. If it is a debit, it represents a loss for the period. In this case, it is assumed that the "Profit and Loss" account had a credit balance of $9,600.00. The amount of this profit is then included in both the left-hand 
(debit) and right-hand (credit) "General" columns of the journal. The figure in the left-hand column is carried to the left (debit) side of the "Profit and Loss" account, thus closing (balancing) that account. The figure in the right­hand column is carried to the right (credit) side of the "Personal" account. 
(5) Closing the personal account into capital.-Entry No. 2 shows the manner in which items (personal with­drawals) reach the "Personal" account. These various withdrawals are summarized in the "Personal" account, at the end of the year. The profits, if there are any, are car­ried, as has just been illustrated, to this account. The differ­ence, whether the profits are greater than the withdrawals or the withdrawals greater than the profits, is then carried to the "Capital" account. In this case, it is assumed that the withdrawals amounted to $2,400.00. The difference between this amount and the profit would be $7,200.00. This $7,200.00 represents the amount of profit which has been realized on the operation of the ranch and which has remained in the business. This figure is, therefore, trans­ferred to the "Capital" account, the figure being entered in both the left (debit) and the right (credit) "General" columns. The figure in the left-hand column is carried to the "Personal" account, thus closing that account. The figure in the right-hand column is carried to the right-hand side of the "Capital" account, thus increasing that account by the net amount of the increase resulting from the year's operations remaining in the business. 
PARTNERSHIPS 
In a business owned by an individual proprietor, the ac­counting records are called upon only to show the financial relationship existing between outsiders and the business, together with such internal operating information as is de­sired. When a business is owned by two or more persons, the accounting records must also show, in addition to the above facts, the financial relations of the partners. For the purpose of this discussion, these relations may be di­vided according to : 
(a) 	
Recording the investments of the partners at the time the books are opened. 

(b) 	
Salaries of partners. 

(c) 	
Amounts withdrawn from the business by the partners. 

(d) 	
Division of partnership profits and losses. 


Whenever two or more persons enter into business, they should have a carefully drawn written agreement covering the various phases of their relations with each other. Most men are fair and broadminded. There are, however, few people who do not know of cases where bitter enmity exists between persons who are, or have been, partners. Many situations can be explained, understood and an amicable agreement reached when the problem is taken up before the actual situation occurs. In many cases, the situations caus­ing disagreement will be avoided if the problem has been previously discussed and the agreement put in writing. Such an agreement should cover all of the items listed above, also the manner in which a referee or mediator may be appointed in case a misunderstanding arises, and the settlement of the various problems which may come up at the time of dissolution. Such an agreement should be drawn with the combined assistance of an attorney and an accountant. The attorney will look after the legal phases, 
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RECORDING INVESTMENTS OF PARTNERS 
It is frequently thought that two men entering into a partnership where they expect to share profits and losses equally will have equal interests in the business. This is not necessarily the case. The contributions of each partner should be valued separately and shown at that value in their respective capital accounts unless a definite agreement has been made to the contrary. From the standpoint of the partnership as a business and its association with all other parties, the assets contributed by each partner are indis­tinguishably merged. The value of each contribution should, however, be kept separate, even though the actual assets lose their separate identities. To make a distinction, it is advisable to make separate entries in the Journal to record the contributions of each partner. 
(a) Unequal investments.-lt is assumed in this case that A and B are just starting in business as partners. It is also assumed that A has the same assets and liabilities as are shown in entry No. 1 in Figure 22. A separate entry should be made for B's contribution, which we will assume is limited to land and cash. If a list of ledger account bal­ances were taken off after these items had been carried to the accounts it would be as follows: 
Cash ------------------$ 40,200.00 
Notes Receivable -------1,000.00
Feed Inventory__ _ _____________ 1,100.00 
Cattle Inventory________________________ 35,000.00 
Horse Inventory___________ 1,000.00 
Equipment Inventory__________________ 7,500.00 

Improvements Inventory -----25,000.00 
Reserve for Depreciation of Improve­
6,000.00
ments --------------­Land ------------------117,000.00

Accounts Payable_________ 900.00 Mortgage Payable 10,000.00 "A" CapitaL---~------­110,900.00 
100,000.00
"B" Capital -------------------­$227,800.00 $227,800.00 
From this list of account balances it will be plain that no distinction is made between the contributions of the part­ners except in the capital accounts. 
The creditors of A (those to whom he was indebted) are now creditors of the partnership. In the event a creditor should find it necessary to bring suit, he would be able to levy on those assets contributed by B as well as those pre­viously held by A. B's liabilities on these original debts would be limited to the amount which he contributed to the partnership. For all debts created after the formation of the partnership, each partner would be liable, in event of failure, to the entire amount of his personal fortune. 
SALARIES OF PARTNERS 
Besides differences in the amount of capital contributed to a partnership, there are frequently wide differences in the amount of time and/or knowledge of the business de­voted to the operation of the business. Sometimes these differences cannot be foreseen. Often they are recognized beforehand. Under these circumstances, an agreement to compensate for them should be made a part of the original contract. Such an agreement may avoid much unpleasant­ness later on. When salary agreements are made a part of the partnership contract they cause each partner drawing a salary to be a creditor of the partnership to the extent of his salary. In the event the salary is not paid, he has a claim against the partnership. 
(b-1) Where Regular Salary Checks Are Drawn. 
Salaries may be recorded on the books in two ways, de­pending on the manner in which the money is drawn by the partners. If the partner or partners are in the habit of drawing a regular salary check for their salaries, the entry may be made in the manner shown in the entries (b-1). It is assumed that A is the partner who devotes his time to the business, and it has been agreed that he shall draw a salary of $200.00 a month. The entry shows the drawing of one month's salary. In this case, the money has been with­drawn from the partnership bank account and turned over to A. The entry was made in the "Bank" column and the "Other Expense" column in the Journal from which it was carried to the left (debit) side of the expense account called "Manager's Salary." When salaries are drawn in this way the matter is finished so far as the partnership books are concerned. 
(b-2) Where Regular Sal,ary Checks Are Not Drawn. 
In some cases the partner or partners may not withdraw the entire amount of their salaries at the end of each salary period. Under these circumstances, the partners generally withdraw various amounts, usually, but not always, some­what less than their salaries. These withdrawals will occur at any time the men may be in need of funds, frequently several times during the month. When this practice is adopted, the salary will be credited to the partners "Per­sonal" account, and charged as in the last case to "Man­ager's Salary" account, the entry being carried through the "Other Expense" column of the Journal. When funds are withdrawn they will be charged to the "Personal" account, the entry being carried through the left-hand (debit) "Per­sonal" column of the Journal and from there to the left side of the partner's personal account. 
Where More Than One Personal Account Is Carried. 
At this time a point of procedure, previously mentioned in the explanations of the Journal, might again be mentioned and explained in more detail. Because of the great prepon­derance of individual owners, no folio column is provided for the "Personal" columns in the Journal. Where only one owner is to be considered the totals of these columns may be carried direct to the "Personal" account. Where there are two or more partners but only one is actively engaged in carrying on the business, these columns may be reserved for items affecting the active partner's "Personal" account. 
The totals will then be carried to that partner's "Personal" account. Entries to be made to the "Personal" account or accounts of the other partners would probably be much less frequent. These could then be entered in the "General" columns of the Journal and carried individually from there to the accounts. When two or more partners are active in the business, there will usually be frequent entries to the "Personal" accounts of each. Under these circumstances it is probably a more satisfactory procedure to enter all personal items in the "Personal" column and then carry each item individually to the account affected. There will seldom be a case where figures will appear on the same line in both the "General" and the "Personal" columns; there­fore the folio columns provided for the "General" columns may be used to show the ledger page numbers for these items. 
WITHDRAWALS 
It has been stated that many partnerships are formed with no written agreements and frequently without any definite understanding regarding many of the vital points which come up in the relationship so created. Even when the point of salaries has been settled, the point of additional drawings is frequently a matter of friction and contention. Particularly is this the case when funds run low, and this condition often arises with surprising abruptness or lack of warning. Under these circumstances, the parties con­cerned, or some of them, frequently find that they must have some funds from the business to meet necessary personal expenses. It is seldom that the personal requirements of two men are the same. As a consequence, what may seem a reasonable amount of withdrawals for one man may seem very unreasonable when viewed from the standpoint of another. If the partners have all kept their drawings within previously agreed limits, little if any fault can be found when such conditions arise. If one or more of the partners has overdrawn the prescribed amounts, there is a 
definiteness of responsibility which precludes circuitous ar­guments. Those who have overdrawn must then submit to penalties which have previously been agreed upon, such as interest charges on excess drawings, accepting a lower per cent of profit, or having a higher per cent of loss charged against their accounts. 
(c-1) Entries Showing Partners' Withdrawals. 
The entries required to record partners' drawings of money are explained in the second entry shown under (b-2). If one of the partners took some feed, stock, or other item from the ranch property the value would be re­corded in the "General" column and in the "Personal" col­umn. In this case, it is assumed that A took a horse valued at $100.00 from the stock on the ranch for the per­sonal use of some member of his family. The charge is made in the left-hand (debit) "Personal" column and the effect on the "Horse Inventory" is recorded in the right­hand (credit) "General" column from which it is carried to the right side of the "Horse Inventory" account. Proper notation should, of course, be made on the "Horse Inven­tory" sheet. 
DIVISION OF PROFITS OR LOSSES7 
There are a number of methods used to divide partner­ship profits and losses. This is only natural when consid­eration is given to the variety of conditions under which partnerships are formed. Too much space would be re­quired to explain all of the principles and to illustrate the methods with the variations which arise when profits are small or when losses are sustained. A partial list of methods and illustrations will be given. When such prob­lems occur the rancher and the lawyer should confer with a competent accountant as matters of a very technical na­ture may arise either directly, or as a result of precedents which may be established. 
2For reference see author's text "Elements of Accounting," pp. 357-375. Ronald Press Co., New York. 
Direct methods. 
Profits and losses divided equally between the partners. 
The courts ordinaritly recognize this method where no agreement exists stipulating other methods. 
Salaries as a part of profits. The matter of salaries has been discussed. 
Interest on investment. 
Interest will not be considered as a part of the division of profits unless it is specifically agreed between the partners. Unless these agreements are very carefully worded they will, in event a loss is suffered, increase the proportion of loss for the partner having the smaller capitla. 
Profits and losses divided according to capital ratio. Under these conditions, three partners having investments of $20,000, $30,000, and $50,000, respectively, would receive profits or bear losses in the proportion of two-tenths, three­tenths, and five-tenths. 
When making such agreements, the matter of drawings should be carefully considered. 
Arbitrary methods. 
It is frequently agreed between the members of a partner­ship that profits shall be divided according to arbitrary ratio which roughly takes care of such matters as salaries and interest, thus: A might receive seventy-five per cent and B twenty-five per cent. 
Combination methods. 
All things considered, a combination of the above methods will probably give the greatest lasting satisfaction. When one or more of the partners gives his time to the business, he is entitled to wages. Dissatisfaction arising out of unequal investments will be decreased if each receives in­terest on his relative investment. The balance of the profits, if any, may then be divided equally or according to any arbitrary ratio desired by the partners. Such an agreement should also include a statement that, in the event profits are not sufficient to cover the salary and in­terest, such profits as are realized will be divided in this proportion, and also that in the event of losses they shall be distributed according to an agreed ratio. 
In the following illustrations it will be considered that, first, a profit of $20,000 was realized during the first year, and that second, a loss of $10,000 was suffered during the first year. 
Equal Ratio. 
(d-1-a) Profit divided equally.-ln this case, the amount of the profit is entered in the left-hand (debit) "General" column of the journal and the amount due each of the part­ners is recorded in the right-hand (credit) "General" col­umn. The figure recorded in the debit column will then be carried to the left side of the "Profit and Loss" account. This entry will "balance" that account. The figures in the right-hand (credit) column will be carried to the right side of the respective personal accounts. The balance of these ac­counts may then be closed into the capital accounts. (It is assumed in this case that A has withdrawn $2,000 which was charged to his "Personal" account and that B has with­drawn $1,000 which was similarly charged.) 
N OTE.-When salaries of one or more partners are cred­ited to the "Personal" account and subsequent drawings are charged to these accounts, the profits are frequently taken directly to the "Capital" accounts, thus leaving the "Per­sonal'' accounts "open." 
(d-1-b) Loss divided equally.-This entry shows how to make the entries when a loss has occurred. The first entry is exactly the reverse of the one preceding. The second entry is the same as though a profit had been realized except that the drawings must be added to the amount of the loss in order to close the "Personal" account, whereas the draw­ings were deducted from the profits in the previous entry. These entries showing the closing of the "Personal" ac­count into the "Capital" account are not repeated in the following examples as there would be no change in the general procedure. 
(d-2-a) (d-2-b) Capital ratio.-In this case it is as­sumed that A and B are to divide profits and losses accord­ing to their relative investments as they are shown on the books at the first of the year. At that time A's "Capital" account showed a balance of $110,900 and B's "Capital" account $100,000. Unless special stipulations are made showing a different intent losses would be charged to the partner's accounts in the same proportion that profits would be credited. In entry (d-2-a) the $20,000 of profits are divided 110,900/ 210,900 to A, and 100,000/ 210,.900 to B. The losses are divided in the same manner in the entry (d-2-b). 
(d-3-a) Salaries and interest taken into consideration. Profits in excess of these amounts.-In this case, the salary amount is considered as a part of the profit distribution rather than an operating expense. Interest on each part­ners investment is also considered in the distribution. For the sake of clarity each step, the salary, the interest, and the distribution of the profit in excess of tbese amounts, is shown as a separate journal entry in this illustration. It is assumed that the salary is $2,400, the interest rate six per cent, and that A and B have agreed to divide excess profits on the basis of A sixty per cent, and B forty per cent. Before any of these entries are made, the net profit for the year would have to be determined. In this, as in the other illustrations, the profit is assumed to be $20,000. 
The first entry charges the "Profit and Loss" account and credits to A's account the amount of his salary. 
The second entry takes an amount equal to six per cent on the total invested capital at the beginning of the year from the net profits. This amount is debited to the "Profit and Loss" account and credited to each partner in the pro­portion of his relative investment. 
The last entry divides the remaining net profit on the agreed forty-sixty per cent basis and transfers it from the "Profit and Loss" account to the partners' accounts. This last entry would "close" the "Profit and Loss" account. 
(d-3-b) Profits less than the agreed amount of salary and interest.-In many partnership agreements where salary and interest, one or both, are taken into consideration the wording is such that when profits are small or when a loss is suffered, the partner whose net credit for salary or interest, one or both, is smaller will receive a smaller pro­portion of the profits, or suffer a greater loss. To avoid this occurrence it is assumed that it has been made a part of the partnership agreement that "in event profits are not sufficient to cover salaries and interest, such profits as are realized will be divided in these proportions." This being the case the total credit to both partners for these items is taken as the denominator of a fraction and each partner's credit as the numerator. Thus, the total credits for salary and interest were, 
Salary ----------------------··------·--------·----------$ 2,400.00 
Interest ------------------------------------------12,654.00 

TotaL______
___
________ _______
____________ $15,054.00 
Of this $15,054.00, A received $9,054 and B received $6,000.00; therefore, such profits as are realized would be divided-
A ----------··--------·-9,054/15,054 
B ---------------------6,000/15,054 
With this simple calculation at hand the journal entry may be made transferring the entire profit, considered in this case to be $7,500, in proper proportions, from the "Profit and Loss" account to the partners' accounts. 
~d-3-c) Loss sustained.-In this case, it is assumed that a loss of $10,000 was sustained and that the partners had agreed to divide losses in the same proportion as excess profits, namely, A sixty per cent, B forty per cent. The loss is then transferred from the "Profit and Loss" account to the partners' accounts in these proportions. 
CORPORATIONS 
Because of the limitations in the probable life of a part­nership, the unusual amount of latitude in management mat­ters given to minor investors, and the unlimited liability of each member of the partnership, many men feel that the corporation is a much more satisfactory form of ownership. 
Although the general trend toward the corporate form is probably less evident in the livestock business, it is felt that some consideration should be given to corporate accounting problems. 
A corporation is, in the eyes of the law, a separate entity. In many respects it is separate and apart from the stock­holders who own it. The corporation, as such, has certain definite obligations towards third parties which are purely its obligations and which cannot be carried back to the stockholders who are the owners. Furthermore, all of the stockholders may die without in any way affecting the life Of the corporation. The creation of this separate entity is a function of the State. The State exercises the function upon the request of certain persons (usually three or more, one or more of whom must be a citizen) after these persons have met the State requirements and filed a petition setting out a number of points prescribed by the corporation law of the particular State. When this petition has been ap­proved by the proper state officials, it becomes the charter of the corporation. Drawing up the certificate of incorpo­ration and carrying it through the proper procedure to obtain approval is a legal matter. Information regarding the amount and classes (if any) of capital stock which the corporation is permitted to issue should be taken from the certificate or charter and made a matter of record on the books of account. In some states stock may not be issued before a permit is secured from the proper state officials. 
It is assumed that ranchmen will have little occasion to form corporations with a complicated capital structure; therefore, the illustrations will be limited to a corporation with no preferred stock and only one class of common stock, with a par value of $100.00 a share. It will be assumed that the State has authorized the corporation to issue up to $250,000.00 of this stock. It will also be assumed that A and B are to be stockholders, each making the same contri­butions as those illustrated in Figure 23. In addition to A and B, it will be assumed that C, an accountant, and D, an 

JOUff.NAL 


FIGURE 24 
attorney, each practicing in the county seat, are to be stock­holders of the corporation. C is to act as secretary of the company. C and D are each to receive $5,000.00 in stock for their services3 in connection with the organization of the corporation. To summarize: 
Authorized Capital Stock_______________ $250,000.00 
Par Value, $100.00 a share 
A and B are the principal stockholders, each making the same 
contributions that were illustrated for partnerships. 
C and D are also to be stockholders. Their stock is to be issued 
to them in payment of service connected with the organization 
of the corporation. 
There are a number of acceptable methods employed by accountants in opening the books of a corporation. A trained accountant may use any of these or a combination of them with entirely satisfactory results. The method used in the following illustrations has been adopted because it seems to follow more closely than others the various steps which arise at the time a business is incorporated and takes care of subequent changes which would affect these ac­counts. 
(
1) Recording authorized capital stock.-The informa­tion required for this entry would be taken from the char­ter. If there were preferred as well as common stock, a similar entry would be made for each class of stock. 

(2) 
Subscription agreement.-Each man who agreed to become a stockholder will, as a rule, be asked to sign a sub­scription agreement. It is good practice to make a record of these subscriptions on the books. In some subscription agreements, the subscription is dependent on whether the corporation, or its promoters, does certain things, such as obtaining a given amount of subscriptions. In other agree­ments no such contingencies exist. When the conditions cited have been met, the subscriber becomes indebted to the corporation for the amount of his subscription. He may 


asome state laws have special stipulations regarding capital stock issued for services. Care should be used not to make book entries which conflict with the statutes of the state in which the business is incorporated. 
settle this indebtedness by paying for the stock at once, but frequently he pays for it at some later date, The amounts due the corporation from each subscriber should be set up in an individual account under the subscriber's name and marked "Subscribers" to differentiate it from the other ac­counts. The amount of individual subscription will be car­ried to the left (debit) side of this account. 
The contra entry will be carried to the right (credit) side of an account called "Subscriptions." Although a separate account will be opened for each subscriber, only one "Sub­scription" account need be opened. All credits for these transactions will be carried to this account. The "Sub­scription" account represents the total potential proprie­torship. 
(3-a) Partial or complete payments by subscriber.­When either partial or complete payments are received, whether in cash, property, or both, the asset values are car­ried to the various accounts in the same manner illustrated for partnerships. These assets are turned over to the cor­poration in payment of the indebtedness of the subscriber. This indebtedness must then be reduced by an amount equal to the net value of the items received by the corporation. In (3-a), A turned over $127,800 in assets, less $6,000.00, reserve for depreciation, the net value being $121,800.00, and the corporation assumed $10,900.00 of his liabilities. The net value received by the corporation was then $110,­
900.00. This amount would be carried to the right (credit) side of the "Subscribers" account. 
(3-b) This entry is handled in the same manner as (3-a) except that there are no Reserves for Depreciation nor liability items to be considered; therefore, the entire value of the assets received is carried to the right (credit) side of the "Subscribers" account. 
( 4-a) Organization expenS'e.---'In the original outline of the corporation under discussion, it was stated that C and D were each to receive $5,000.00 in stock for their services in connection with the organization. All stock issued must 
be fully paid for. Payment may be in cash, property, prop­erty rights, or services.' In this case the stock is to be is­sued for services. So that the books may show each step of the entire agreement, the bills rendered by C and D for services are recorded in this entry together with the liability arising therefrom. At the time the invoices are received the amounts will be charged to the "Organization Expense" account, the entry being carried from the left (debit) "Gen­eral" column of the journal to the left side of this account. The contra entries showing the liabilities will be recorded on the right (credit) side of accounts opened up for C and 
D. The amounts will be carried to these accounts from the right (credit) "General" column of the Journal. 
(4-b) Transfer of amounts which corporatwn owes.­
This entry shows the transfer of the amounts which the corporation owes C and D to the accounts showing a similar liability of C and D to the corporation. In this way the books show that the stock was issued to relieve the corpora­tion of definite liabilities. In most cases where the books are handled by experienced bookkeepers, these two entries would probably be combined. They are shown in this man­ner so as to illustrate each step. 
(5) 
Cash expenditures for organization expense.-Be­sides the amounts given to C and D in stock for organiza­tion work, there will be in most instances some cash ex­penditures. These expenditures will be for such items as incorporation fees and traveling expenses incident to ob­taining the charter. Such expenditures will be made in the same manner as other disbursements, the amount being placed in the right-hand (credit) "Bank" column and the left-hand (debit) "General" column. The latter amount will be carried to the left side of the "Organization Ex­pense" account. 

(6) 
Issue of capital stock which has been paid for.-At this point all, or a portion of each subscriber's account has been written off. Each subscriber has contributed either 


"Supra. 
assets or services. A has not contributed all that he agreed to, and as a consequence he is still liable to the corporation and/or its creditors for the unpaid portion. The other sub­scribers have met their entire obligation. The shares of capital stock should now be issued for the amounts which have been paid. The Stock Certificate book is not unlike an ordinary check book. Special care should be used to see that the stubs are filled out in detail. The certificates will be issued to each of the stockholders as follows: 
A will receive stock certificate No. 1 for 1,109 shares. 
Par value__________________________________ $110,900 
B will receive stock certificate No. 2 for 1,000 shares. 
Par value -------------100,000 
C will receive stock certificate No. 3 for 50 shares. 
Par value____ ---------5,000 
D will receive stock certificate No. 4 for 50 shares. 
Par value______________ 5,000 
Total__________________________________ $220,900 
To the extent that the stock has been issued to them these men are now stockholders in the full sense of the word. The account showing the amount of potential ownership (the "Subscription" account) must then be reduced as must also the "Unissued Capital Stock" account. This entry reduces these accounts by an amount equal to the par value of the capital stock which has been issued. 
The balance of the "Subscription" account now stands: 
Original entry (Credit) ___________ $225,000 
Deductions (Debit) ___________ 220,900 
Balance (Due from A) ___________ $ 4,100 
The "Unissused Capital Stock" account would show: 
Original Entry (Debit) $250,000 
Deductions (Credit) 220,900 

Balance -------------------$ 29,100 
This balance corresponds to the amount ($25,000) of stock which has not been subscribed plus the $4,100.00 of A's subscription which has not been paid and consequently for which no stock has been issued. 
The difference between the balances of the "Capital Stock Authorized" account and the "Unissued Capital Stock" ac­count should always be equal to the total par value of the stock which has been issued as shown by the stubs of the stock certificate book. 
In large corporations, separate accounts, known as "Cap­ital Stock" accounts are opened for each stockholder. In small or "close" corporations, where all of the capital stock which has been issued is held by a few individuals, this pro­cedure is not a necessity.15 All necessary information can be taken from the stock certificate stubs. 
Stock Transfers. 
One of the advantages of the corporate form of owner­ship is the freedom which each stockholder has to transfer his interest in the business, or any portion of it, to another without the consent of the co-owners. When transfers are made in a small corporation such as is here described, the only required procedure is that the original stock certificate must be properly endorsed and returned to the person au­thorized to keep the stock certificate book. 
Complete instructions should be given by the present holder regarding the manner in which the stock is to be transferred. Thus, we may assume that B decided to present each of his sons, X and Y, with a $25,000 in­terest in the business. B would endorse the certificate. It would then be placed in the hands of the person keeping the stock certificate book, who would issue another certifi­cate to B (in this case certificate No. 5) for 500 shares. He would also issue a certificate (No. 6) to X for 250 shares and another (No. 7) to Y for a similar amount. Care should be used in each case to fill out all of the required informa­tion on the stub of the stock certificate book. Having issued the new certificates, the old certificate should be securely pasted to the stub from which it was originally detached. Care should be used to see that prO'per revenue stamps have been affixed to both the stub and the cancelled certificate. 
5Statutes in some states require individual capital stock accounts. 
This procedure should be followed each time there is a transfer of stock certificates. Such an exchange does not affect the total amount of corporate stock issued by the cor­poration; therefore, no entry is required in the books of account. 
(7) Transfer of profit to "Surplus."-In the business owned by an individual or by a partnership, the net profit or loss shown as the balance of the "Profit and Loss" ac­count was transferred through the "Personal" account to the "Capital" account of the owner or owners. Such profits and losses should not be transferred to either the "Unissued Capital Stock" or the "Capital Stock Authorized" accounts. The amount of profit or loss in no way affects the par value of the stock which has been issued. Separate accounts are opened to show the amount of increase or decrease in Net Worth from year to year and the balance of the "Profit and Loss" account is carried to these accounts. 
In this case, it is assumed that a profit of $20,000 has been realized. The figure in the left-hand (debit) "General" column of the Journal is carried to the left side of the "Profit and Loss" account. The figure in the right-hand 
(credit) column of the Journal is carried to the right side of the new account which will be known as the "Surplus" ac­count. The balance of this account will always indicate the surplus (according to the book figures), of net worth over the total par value of the capital stock which has been issued. 
(8) Writing off of "Organization Expense."-At the time of organization, certain charges were made to "Or­ganization Expense." Some expense of this kind is a neces­sary incident of incorporation. As long as the business is continued the corporate charter will be of value to the organization as a going concern. The balance of this ac­count does not, however, represent anything of tangible or realizable value. "Organization Expense," therefore, should be written off as rapidly as the earnings of the business will permit. It is generally considered good practice to have it eliminated by the end of three to five years. In this case, it is assumed that the directors have at this time approved a decrease of $2,500. This amount is carried to the left side of the "Surplus" account from the left-hand (debit) "General" column of the Journal and to the right side of the "Organization Expense" account from the right-hand "Gen­eral" column of the Journal. The "Organization Expense" account now carries a balance of $8,000 which should be written off within the next few years. 
(9) Declaration of dividends.-All disbursements of profits in a corporation must be made in the form of divi­dends, the amount of which must be passed on by the direc­tors. One of the fundamental rules of corporate law and management is that dividends may only be paid from earn­ings. The earnings will, of course, be reflected in the "Sur­plus" account. Another equally important point not recog­nized by the law, but which must be given equal considera­tion by the management and directors is whether a sufficient amount of the earnings of the business has been turned into cash to make a dividend possible. When a dividend is "de­clared" by the directors, a record will be made of the action in the Minute Book. The record should include a statement of the amount (usually stated in terms of percentages) which is to be paid on each share of outstanding stock and the date or dates upon which the payment is to be made. After such a motion has been passed by the Board of Direc­tors, an entry will be made in the books of account, reducing the "Surplus" account by the entire amount of the dividend and opening up a new account known as "Dividends Pay­able" for this amount. The "Dividends Payable" account is a liability account, as the corporation is liable to the stock­holders for the amount of the dividends as soon as notice is given that the dividend has been declared. In this case, it is considered that a five per cent dividend has been de­clared and that the dividend is to be paid in two install­ments. As shown in the illustration, the amount entered in the left-hand (debit) "General" column of the Journal is carried to the left side of the "Surplus" account. The figure in the right-hand (credit) "General" column of the journal is carried to the right side of the "Dividends Payable" ac­count. 
(10) Dividend payments, first installment checks.-On the date for the payment of the first installment, checks will be drawn to the order of each stockholder for an amount equal to that specified in the minutes of the directors' meet­ing, in this case 21;2 per cent of par value of the stock. The amount of each check will be placed in the right-hand 
(credit) "Bank" column. The total amount of the dis­bursement will be placed in the left-hand (debit) "Gen­eral" column and will be carried from there to the left side of the "Dividends Payable" account. The liability is thus reduced by the amount of the payment. 
(11) Transfer of loss to "Deficit."-Entries numbered 7, 8, 9, and 10 are those which arise when the business of the corporation results in a profit. Unfortunately, as all livestock men know, a profit not always results. If a loss of $10,000 had been suffered during the first year, the "Profit and Loss" account would have a debit rather than a credit balance and there would be a smaller excess of assets over liabilities than the par value of the outstanding capital stock. Because of these facts a new account called "Defi­cit" will be opened. The amount to be entered in this account will be the debit balance of the "Profit and Loss" ac­count, which will be carried to the "Deficit" account from the left-hand (debit) "General" column of the Journal. The same figure will appear in the right-hand (credit) "Gen­eral" column and be carried from there to the right side of the "Profit and Loss" account, thus closing that account. 
If the loss had occurred in some subsequent year after there had been some profits, and as a consequence a surplus had been created, the amount of the loss would be carried to the left side of the "Surplus," providing the balance of the "Surplus" account was greater than the current loss. Under these circumstances the title "Surplus" would re­place the title "Deficit" in the first line of the entry. 
(12) Portion of loss to "Surplus," balance to "Deficit."­In the event a surplus existed but the balance of the account was not greater than the current loss, an amount equal to the present balance of the "Surplus" account would be car­ried to that account. Only the difference would then be car­ried to the "Deficit" account. In this case, it is assumed that the $20,000 shown in the previous entries was earned the first year and also that the deductions had been made. The "Surplus" account would then disclose the following facts: 
Profits --Less: Reduction Dividends  ----------------------­-----­of Organization Expense_ -----­----------­ $ 2,500.00 11,045.00  $20,000.00 13,545.00  
Balance  -- --- ---­------­----­-­- $ 6,455.00  

Under these circumstances, $6,455 of the $10,000 loss would be entered in the left-hand (debit) "General" column of the Journal and carried from there to the left side of the "Surplus" account, thus closing that account. The balance of the loss ($3,545) will be entered in the same column of the journal and carried to the left side of the "Deficit" account. As in the previous entry the entire amount of the loss is entered in the right-hand (credit) "General" col­umn and carried to the right side of the "Profit and Loss" account. 
(13) Closing "Deficit" into "Surplus."-If the loss had been sustained the first year or at some subsequent time, making it necessary to set up a "Deficit" account and if later, profits were again realized, such profits would be carried to "Surplus" in the manner shown in entry No. 7. After this entry had been made the balance of the "Deficit" account (in this case $10,000) should be closed into "Sur­plus." The figures would be entered in both the left (debit) and right (credit) "General" columns of the Journal. The figure in the left-hand column would be carried to the left side of the "Surplus" account. The figure in the right­hand column would be carried to the right side of the "Deficit" account, thus closing that account. 
THE LEDGER CONTINUED-INCOME AND 
EXPENSE ACCOUNTS 

INCOME 
The accounting procedure which is described herein is designed to meet the needs of the livestock rancher. There­fore there must be presented statements which will clearly show each year what income has developed from the live­stock business as such. The income from livestock opera­tions must not be confused with any other sources of income if an accurate picture of the business and its opera­tions is to be drawn from the accounting records. For this reason the income accounts are divided into two groups: first, those which show the sale of different ranch products, and, second, those which record the income arising from various sources outside of the ranch operations. It is pos­sible that some ranchers may find use for all of the accounts listed under the income classification. In many cases, it will not be necessary to use all of these accounts. It is much better to have too many accounts than too few. 
SALE OF RANCH PRODUCTS 
Cattle Sales. 
All amounts received or which are to be received from the sale of cattle where the title to the cattle has actually passed to the purchaser should be recorded in this account. No amount should be omitted because the payment has not been received, if the transaction has been definitely closed and the rancher has completed his part of the agreement, such as delivery. No amounts should be included unless the transaction is complete. 
When cattle are sold at the stockyards, the broker will render an "account sales" report to the rancher (Figure 4). The transaction will be recorded as shown in entry No. 9 in the Journal (Figure 10). 
Where cattle are sold in this manner, the actual sale price is the figure which should be carried to the "Cattle Sales" account. Thus, in entry No. 9 in Figure 10, $3,942.99 is the amount which is placed in the column provided for "Sale of Ranch Products." The difference between $3,942.99 and the cash received ($502.05) should be charged to "Sell­ing and Shipping Expense," the entry being made in that column. 
On ranches where a registered herd is maintained it will be desirable to divide the "Cattle Sales" into two or three separate accounts, as follows: 
Cattle Sales: 
Registered Herd Pure Bred Herd Grade Herd 
This division will make possible a separation of the in­come arising from each class of cattle. Whenever cattle are sold, there should be a record on the "Cattle Inventory" sheet which corresponds to the entry for the sale. 
Mutton Sales. 
This account will be used to record the sale price of sheep. The sale price of high grade or registered rams which are sold to other ranchers should not be included in this account unless such sales are not a regular occurrence. When spe­cial rams are raised for sale, a separate account should be maintained to record the income arising from this source. 
In general this account will be handled in the same man­ner as "Cattle Sales." 
Wool Sales. 
The total price for which wool is sold will be recorded under this head. Where flocks of sheep producing wool of a special high grade are kept, it will probably be better to record such sales in a separate sales account. The mechan­ical details of making entries will be the same for the "Wool Sales" account a& they are in "Cattle Sales" and the other income accounts. 
Goat Sales. 
Goat raising has become very popular in some portions of Texas. A number of ranchers have realized substantial amounts from raising goats for sale. Sales of goats should not be confused with other sources of income but should be kept separate. The account will be used to record the in­come arising from goat sales. Where different breeds of goats are kept for sale, the best results will be obtained by having a separate sales account for each breed. Entries will be made in the same manner as those in the "Cattle Sales" account. 
Mohair Sales. 
The total amounts received from the sale of mohair will be recorded in this account. It is the same in all details as "Wool Sales." 
Service. 
Many ranchers have large investments in high grade breeding stock. The amounts charged for the services of this stock should be recorded in this account. When a num­ber of high grade animals are kept for special breeding purposes, separate accounts should be maintained for each animal. As in the other income accounts, the entries show­ing the various amounts of income will be carried to the right (credit) side of the account from the column provided for the "Sale of Ranch Products" in the Journal. In the other accounts, occasions will seldom arise, in the routine of ranch business, where an entry will be made on the other 
(debit) side of the income accounts. Such entries may arise with greater frequency in the "Service" account as the service charge is frequently accompanied by a guarantee covering the success of the mating. Where several attempts are made and mating is unsuccessful the amount of the serv­ice charge will, under these circumstances, be returned. To pay this amount a check will be drawn for the amount to be paid. This amount will be entered in the right-hand 
(credit) "Bank" column and the left-hand (debit) "Gen­eral" column of the Journal from where it will be carried to the left side of the "Service" account. This entry will then act as an offset to the item recording the income at the time payment was received. 
OTHER INCOME 
The following account titles are given merely as sugges­tions or indications of the kind of income which should not be confused with the income arising from the livestock operations. It would, of course, be impossible to include all of the various sources from which income might arise in sufficient proportions to justify the opening of a separate account; therefore, only a few of the more common accounts will be listed. Unless otherwise indicated, the entries to these accounts will be carried to the right (credit) side of the account from the "Other Income" column in the Journal. 
Grazing Leases. 
Where portions of the ranch are leased to others for graz­ing purposes, or where grazing rights are extended to others on a basis of a specified price per head, the amounts earned will be recorded in this account. 
Oil Leases. 
Many ranchers have leased certain areas of the ranch to oil companies for the purpose of drilling wells. Such leases are ordinarily based on a flat price per acre or section for the exclusive right of the lessee or his assigns to drill on the prescribed area. Such leases ordinarily require that drilling shall start within a certain length of time and that the rights shall be terminated if oil is not found by a speci­fied date. At the time the money is received on such leases, it may, if the time allowed to bring in a well is all in the cur­rent year, be credited directly to this account. If the time limit extends beyond the current year, it would be better practice to credit the amount to an account which we may call "Unearned Lease Income." Under this condition an amount will be transferred to "Oil Lease" account at the end of the year, which corresponds to the proportionate time the lease has been in force. 
In some instances, payments for drilling rights may be received in installments. If the amounts received cor­respond to the fiscal year of the rancher these amounts may be taken directly to the income account (in the manner illustrated by entry No. 1, Figure No. 25). If the payments are made in advance of the fiscal year the amounts should be entered in the "Unearned Lease Income" account and proper adjustments should then be made at the end of the year {entries No. 2 and No. 3). 
It is the general custom in oil territories to allow the owner of the land a royalty on all oil which may be pro­duced under the drilling lease. Payments of royalties are received at frequent intervals. As a rule, these checks will be received before the books are closed for the fiscal period; therefore, the amounts received may be taken directly to the income account. In the event the settlement is withheld until after the time the books were closed and it was pos­sible to determine the amount of oil produced with a reason­able degree of accuracy {which should always be possible), the amount of the income so determined should be credited to the income account and a corresponding charge against the oil company should be placed on the books. 
In 	the following illustrations, entries are given to cover 
some of the conditions which may occur in connection with 
oil leases. 
1. 	
Receipt of cash for a lease, the terms of which do not extend beyond the current year. 

2. 	
Receipt of cash on a lease which extends over succeeding years. 

3. 	
Making adjustments at the end of the year. 

4. 	
Making adjustments when the lessee has not complied with the terms of the lease. 


(1) Time limit within the current year.-As the $3,200 received from the oil company is to be placed in the bank, it will be entered in the left-hand "Bank" column. 
. .

.. 
., ~ 


,., .., .  ·­ 
bee.  14' 1f oM•ot rr-J/ ct:f~.,/ fr,,,, 0.C.a,_~A  !110  ,,,  l.1.. ­ J  L),.////,,.t ,.,.,,t, 0 .( . &e,, . .2-s. .Se'  ~ADO  ,__  
, . M • .,  I filt/d;,U rect.1-..U {,.,., lo 18-. Lt:o.sr r,,. ~it.e.J  IJ..//o'  O•  



FIGURE 25A 
The other side of the entry will be carried to that portion of the journal set aside for "Other Income." As this income arises from oil leases, an income account will be opened under that name. This account name, "Oil Leases," will be written in the space provided and the amount received in the amount column. It will then be transferred to the right (credit) side of the "Oil Lease" account. 
(2) Rights longer than one year.-Where the drilling rights extend over a period greater than one year it is often 
more convenient to enter the entire amount received as "Unearned Lease Income." Where this is the case the amount may be entered in the "Cash" columns as explained in (1), the contra entry being made in the right-hand "Gen­eral" column. From there it will be carried to the right­hand (credit) side of the "Unearned Lease Income" ac­count. 
(3) Taking up the income at the end of the year.-At 
the end of the year the portion of the amount received on the lease which has been earned during the current year should be taken up as income. This amount will then be transferred from the "Unearned Lease Income" account to the "Oil Lease" account. An entry is therefore made (in this case the amount is considered to be $800.00) in both the left-hand (debit) and the right-hand (credit) "General" columns of the Journal. The figure in the left-hand column will be carried to the left (debit) side of the "Unearned Lease Income" account thus reducing that account by the amount which is to be taken up as income. The figure in the right-hand column will be carried to the right (credit) side of the "Oil Lease" account. 
(4) 
Closing the "Unearned Income" account.-When­ever a balance remains in the "Unearned Lease Income" ac­count and for some reason or other the purpose in carrying this amount as unearned income ceases to exist, the amount may at once be transferred. In this case, it is assumed that the oil company failed to do the required amount of drilling in the allotted time and therefore forfeited its right to continue drilling on the property. Under these circum­stances, the $2,400.00 remaining in the account could at once be transferred to the "Income" account. The balance is therefore entered in both the left-and right-hand "Gen­eral" columns in the journal. The figure in the left-hand column is carried to the "Unearned Lease Income" account. The figure in the right-hand column is carried to the income account "Oil Leases." 

(5) 
Receipts of royalties.-When producing wells are developed and as a result checks are received from the oil 


company for royalties due the owner of the land, the amount of these royalties will be taken up in the same manner as the original amounts received for drilling rights. The amount of the check will first be entered in the left­hand (debit) "Bank" column, and will be included in the total of that column showing the amount of cash received for that month. The contra entry will be made in that section of the Journal designed for other income, the name of the account affected, "Oil Leases," being written in the account column and the amount placed in the amount col­umn. This amount will then be carried to the right (credit) side of the "Oil Lease" account. 
(6) Royalties due.-Where checks are not received be­fore the books are closed and it is decided to set up at that time an amount due from the oil company, the entry will be made to an account receivable and to the income account. Thus, in this illustration, it is assumed that $8,400.00 is due from the Boone Oil Company. This amount will be entered in the left-hand (debit) "General" column and carried from there to the left side of the account which would be opened under the name of the Boone Oil Company. The contra entry will be carried through in exactly the same way as illustrated in entries (1) and (5). 
Interest Income. 
"Interest Income" classifies the amounts which are earned by loaning money or its equivalent to others. This income may arise through the purchase of securities or interest re­ceived on outstanding notes receivable, mortgages receiv­able, or under some conditions where amounts are carried in accounts receivable. 
Entries affecting this account are shown in connection with "Securities" (Figure 14) and "Notes Receivable" (Figure 12). 
Accounting Procedure for Livestock Ranches 167 EXPENSE 
In the Expense classification, as in Income, the accounts are divided between those which are used to record the ex­penses arising from ranch operations and those which are extraneous to the buying, selling, and raising of livestock. 
All expense items should be entered at the time they are incurred. This practise will be difficult when information regarding these items reaches the bookkeeper through the medium of cancelled checks and items which may be re­corded in the rancher's notebook. Every effort should be made, however, to bring them on the books as soon as pos­sible. At the close of the fiscal year special care must be used to make a record of all expense items which have been incurred up to the time the books are closed. 
Cattle Purchases. 
The amounts expended for the purchase of cattle will be recorded in this account, and it will include the actual in­voice price of the cattle and in addition thereto, any expense incurred in getting the cattle to the place where they are to be kept. Such expense may include freight, traveling and living expense of attendants accompanying the cattle, in­surance, feed during the time of shipment, driving, and extra salaries. 
After all such expense has been determined for each purchase of cattle, the total expense should be added to the purchase price of the cattle. Then the cost per head should de determined. This cost can be determined by dividing this extra expense by the total number of head which were purchased and delivered on the required range. An example is given below. 
Two hundred head of cattle were purchased, divided as 
follows:  
120 Cows_______________________________ 80 Calves___
__________________
____  @ $50.00 @ 10.00  $6,000.00 800.00  
$6,800.00  

The following expenses are incurred in taking the cattle to the ranch : 
Wages----------·---------------$ 75.00 
Living expenses of crew_____________ 30.00 
Feed _____ 20.00 
Total driving expense. ----$125.00 
This expense would then be divided as follows: 
$125.00+200=$0.625 cost per head.
Invoice Price__________________ $6,800.00 
Driving Expense. 125.00 
$6,925.00 
The total amount charged to the "Cattle Purchase" ac­count would be $6,925.00 The figures showing the cost per head should be worked out, however, and shown in Column No. 4A of the "Livestock Inventory" sheet. The information may also appear in the explanation column of the ledger account. From the standpoint of conventional accounting this latter method is rather informal. When transactions are infrequent and subsidiary information is available on the "Cattle Inventory" sheet, it will work out quite satis­factorily. 
If, in the foregoing illustration, some of the cattle had been lost between the time they were accepted and the time they were transferred to the desired place, the total pur­chase cost would then be prorated over those left. This procedure would increase the cost per head but would not affect the total cost. There may be times when extra ex­pense is caused by one group of cattle; thus, in the previous illustration, it might have been necessary to feed the stock because the calves had to be driven more slowly. Under these circumstances, the extra expense should be charged directly to the cost of the calves. If under these circum­stances the extra expense amounted to $50.00 the remaining $75.00 would be prorated over the entire herd and the $50.00 charged directly to the calves. 
$75.00+200=$0.37'h per head 
$50.00+ 80=$0.621h extra expense per head for calves 
The cows would then cost $50.371,6 per head 
The calves would cost $10.37'h+.621h or $11.00 per head. 
If more than one grade of cattle is carried on the ranch, a separate purchase account should be carried for each grade. Care should always be used to see that there is a Purchase account, the classification of which corresponds to each Sales account, whenever there are both purchase and sales transactions involving that grade of cattle during the current fiscal year. 
Sheep and Goat Purchases. 
These accounts are handled in the same manner as "Cattle Purchases." 
Feed and Salt. 
At one time or another the purchase of some feed is neces­sary on most ranches. This account should carry the amounts spent for feed and salt which are to be used on the ranch. It should not carry charges for feed used to bring newly purchased livestock to the ranch or that which is used when cattle are on their way to market. The former item is a part of cost of the livestock and should be charged to the proper "Purchase" account. The expense incurred in shipping cattle to market should all be charged to "Sell­ing and Shipping Expense." The "Feed and Salt" account will not be charged with the estimated value of feed which is raised on the ranch and then fed to the stock. Such feed may only be taken up as expense when a complete set of cost accounting records is maintained. 
Labor. This account should carry the amounts paid to employees for carrying on the routine work of the ranch. Amounts paid to servants used only in the home of the owner should not be included, as these wages should be charged to the owner's "Personal Account." When extra help is hired to build or repair fences, reservoirs, or buildings, the amount of those payments should go to the proper improvement or repair account. In some cases, special attendants are hired to look after registered herds. Under these circumstances it would be 
best to maintain a separate labor account for the registered herd. In the same way, a separate labor account should be maintained for farm labor if both farm and livestock operations are carried on. When farm operations are kept separate, it may, at times, be necessary to make rather ar... bitrary divisions between the amounts charged to the two accounts. The maintenance of these two accounts will call attention to the relative amounts of labor expended on each operation, and on the whole will be very much worth while even though there might be a question regarding some of the details. 
Round-Up Expense. 
Some ranchmen maintain that round-ups are unnecessary now that the open range is a thing of the past. No doubt it is less necessary to get the brand on calves which are in fenced pastures. But it is difficult to see how the rancher who does not round up his cattle at regular intervals will have any definite check on the number of his cattle. 
Round-ups are an extra expense both for labor and board. The amount of such expense should be recorded in this ac­count. 
Clipping and Shearing Expense. 
Professional clippers and shearers frequently do this part of the ranch work at a flat rate of so much per head. This account is maintained to record such expenses together with the extra expense of boarding the clipping crew, grinding clippers, depreciation and repairs on clipping equipment, etc. 
Auto and Truck Expense. 
The cost of such items as gasoline, oil, tires, repairs, and depreciation, for all passenger cars or trucks used for ranch business should be entered in this account. Care must be exercised not to include the expense wholly incident to the operation of personal cars by the owner or his family, even though these cars are occasionally used for ranch business. 
Veterinary and Drugs. 
Some ranchers consider that the amounts spent for anti­toxins, etc., may be satisfactorily classified as "Supplies." To some extent, this belief is true. It is generally con­ceded, however, that there is a direct relationship between the use of antitoxins and the number of head which die from various infections. If a check is to be maintained on the effectiveness of these preventives it would be well to segre­gate the expenditures. This account is maintained for that purpose. 
Repairs. 
Practically all "Equipment" or "Improvement" items re­quire more or less repair or upkeep if they are to be kept in good usable condition throughout their estimated life. A house may be built which should have a usable life of twenty-five years. If repairs are not made it is probable that the house would become uninhabitable in ten or fifteen years, if not sooner. In the same way, a fence may have an extended life if repairs are maintained, but after a few posts are broken, if repairs are not made, it becomes prac­tically useless. The cost of all normal repairs should be carried in this account. When the labor for such repairs is carried on by regular ranch employees, it may be imprac­tical to show these amounts in the "Repair" account. All extra labor or materials which are used should be charged so that a comparison may be made from year to year. 
Table Expense. 
This account will carry all of the expense incident to the 
boarding of ranch employees, such as groceries, meats, 
wages paid to cooks, flunkies, etc. The main entries to the 
account will come from posting the total of the special 
column provided for the account in the journal, although 
individual postings from the "General" column of the jour­
nal will be necessary at times. 
The division of living expenses between the family of the 
owner and the operating expense of the ranch has often provided a difficult point-at least one upon which there has been no uniform procedure throughout the ranch country. Where a separate table is maintained for the ranch em­ployees, it is relatively easy to segregate the expense items chargeable to that table. When meat and groceries are ordered, they can be charged by the storekeeper on two ac­counts, one for the crew and the other for the owner's house. Where only one table is maintained, the better procedure would probably be to charge all table expense to this account. At the end of the fiscal year it should be possible to check with substantial accuracy the number of days each employee has received board and the number of days each member of the owners family has been on the ranch. With these figures at hand the proportion of the table expense chargeable to the owner's personal account may be determined and transferred to that account. 
Assume that: Days Three employees worked 12 months 1,080 Two employees worked 3 months_ -----­180 Fourteen employees worked 20 days 280 Five employees worked 3 days ___ 15 
One employee worked 1 day_.__________ 
1 
Total employee days___ ____ l,556 
Two members of family on ranch 10 months_____ 600 Two members of family on ranch 3 months_____ 180 One member of family on ranch 1 month_________ 30 
Total family days________________ 810 
Summary:Total employee days_____ ___ 1,556 
Total family days ------------------810 
2,366 
At the end of the year it may be assumed that the balance of the table expense account amounted to $3,549.00. 
$3,549 + 2,366 =$1.50 or daily table cost for each person. $1.50 X 810 =$1,215, value of board received by family. 
The amount entered in the left-hand (debit) "Personal" column of the Journal would then be included in the total which is carried to the left side of the "Personal" account 
(see page 136). The amount entered in the right-hand 
(credit) "General" column of the Journal will be posted as an individual item to the right-side of the "Table Expense" account, thus reducing that account by this amount. 

FIGURE 26 
Depreciation. 
Unlike most expense accounts, the amounts charged to "Depreciation" do not arise directly from the recording of expenditures or liabilities. The amounts charged to this account represent the decrease in value of the different items listed as "Equipment" or "Improvements." The actual amounts which should be charged off will vary ac­cording to conditions. It is seldom possible to arrive at a depreciation rate which will exactly equal the life of any particular asset. A number of general studies have been made by various authorities. Pertinent items from some of these studies are given below. 
COST ACCOUNTING 
by 
J. Lee Nicholson, C.P.A. 
John F. D. Rohrback, B.C.S., C.P.A. 

Schedule of Depreciation Rates: 
The following schedule of depreciation rates represents a classification used by one of the largest manufacturing concerns in the country. The majority of the rates have been determined at various conferences held to consider the question. They are endorsed by the writer as they are the results of long and careful study of this subject. The rates apply to a period of one year. 
Per Cent 
Land: Dams and waterways___________________________________ 1% Roadways and sidewalks____________________________ 4 Wells-Water ---------------------------------3 Buildings: Housing: Dwellings-frame --------------------------------­
3 
Fire-proof: Concrete --------------------------------------------2 Brick ---------------------------------------------------2% 
Brick and concrete floors____________________________ 2¥.i 
Corrugated iron-steel frame, concrete floor_______ 2 Reinforced concrete, or steel and tile__________________ 2 Stone, brick, concrete with or without steel, first-
class stone and brick.___________________________________ 2 Mill or slow-burning buildings, brick, steel, and wood, 
or brick and wood_______________________________________ 3 Non-fire-proof: Outbuildings -------------------------------------------7% Wood --------------------------------------5 Substantial wooden buildings ---------------------------5 All-wood structures-well built-------------------------5 
All-wood structures--cheap material______________________ 71!.i Steel or corrugated sheet iron with wood___________ 5 Corrugated iron-wood frame and floor__
___________ 5 Corrugated iron-wood frame, concrete floor_______ 5 Corrugated iron-steel frame, wood floor___________ 5 Concrete block with wooden roofs and floors___________ 5 
Miscellaneous structures: Frames-stables and sheds_____________________ 5 Bins--concrete and brick_____________________ 5 Bins-wood alone______________________________ 20 
Fences-wooden ---------------------------------------10 
Fences-wooden and wire mesh_________________________ 8¥.i Pump --------------------------------------------5
Retaining walls ____________________________________2-5 Tunnels, underground piping, vaults, and ger1eral con­duits -----------------------------------------------------------5
Tanks and reservoirs-steel_______________________________________ 4lf.i Tanks and reservoirs-wood___________________________________ 8 Small Tools: All small tools of an asset nature__________________________ 10 Miscellaneous Equipment: 
Anvils, forges, bending blocks, track and wagon scales, crane scales, portable scales, oil and pow­der cans, oil filters, storage batteries________________ 10 
Fixed kettles and scales___________________________________________ 10 
Office furniture and fixtures, including store fixtures: Furniture and fixtures_________________________________________ 10 Partitions --------------------------------------------------------------------------------7lf.i 
Benches --------------------------------------------------------------------------8
Trucks and movable racks__
_____
______________:___________________________ 71!.i Typewriters and adding machines_________________________________ 20 Telephone equipment___________________________ 7% 
Per Cent Transportation-local: Motor trucks, automobiles, stable equipment, motor 
boats, etc,__ 
_
______
__________________________________________ 25 Horses and wagons______________ 
_
_______________________ 
_
_
________________ 
12¥.i 
PRINCIPLES OF AUDITING 

by 

Eric L. Kohler, M.A., C.P.A. 
and 
Paul W. Pettengill, C.P.A. 

While depreciation rates vary greatly they may be assumed to be within the range given below. Per Cent Buildings -----------------------------------------------------------2-5
Machinery and equipment___
____________________________ 7-10 Furniture and fixtures_
______________________________ 
10-15 Automobiles and trucks___ 
_
_____
________________________________________________ 20-50 
Patterns ---------------------------------------------------20-40 Small tools -------------------------------------30-60 
INTRODUCTORY ACCOUNTING 
by 
John A. Powelson, B.A., C.P.A. 
It is well for accountants to become familiar with depreciation rates which are considered to be approximately correct. Some of them are as follows: 
Per Cent Automobiles ------------------------------------------20 -33 ~ Machinery -------------------------------------6%-12~
Furniture and fixtures__________________________________________ 10 -20 Concrete buildings___________ --------------1%-2 Brick buildings -------------------------------------------2 -2¥.i
Frame buildings_______________________________________ 31h-4 
When the amount of depreciation which is to be charged off on each item of "Equipment" or "Improvements" has been placed in the column provided for the current year on the appropriate inventory sheet, the total of this column will be entered in the journal as shown in entries No. 11 and No. 12, Figure 27. 
Selling and ShiP'[Ying Expense. 
All expense incident to the sale of cattle, such as com­missions, feeding, driving, freight, board and wages of those attending the cattle, should be charged to this ac­count. In most cases the entries will be made from the total of the column provided in the Journal. This amount will be entered on the left (debit) side of this account. Separate accounts should be carried for Registered Herd, Grade Herd, and sheep or goats. 
Taxes and Insurance. 
The amounts of all tax assessments and insurance pre­miums on ranch property (not on the personal property of the owner or his family) should be charged to this account. As no special column is provided in the journal, these charges will be posted individually from the "Other Ex­pense" or "General" columns of the Journal. 
Leases. 
Many ranchers lease a considerable portion of their range. In order not to confuse the expense of leased land with that of property owned, this account is used to segre­gate all such payments. Repairs to fences, buildings, and reservoirs, taxes which may be paid on the property which is leased, or any other expenditure incident to the lease should be carried to this account and not confused with the expend­itures for similar items charged to the other operating expense accounts carried in connection with owned prop­erty. As payments of this kind are more or less infrequent no special column is provided. The entries will be made as individual postings from the "Other Expense" columns of the Journal. 
Interest Expense. 
All interest payments, or the amounts of discount which may be deducted on notes given to the bank should be charged to this account provided the money is borrowed for ranch business. The entries will come from the "Other Expense" or "General" columns of the Journal, and will be entered on the left (debit) side of the account. Interest paid for money borrowed for personal use or on def erred payments for personal items, such as automobiles, should be charged to the "Personal" account. 
Miscellaneous Gain and Loss. 
It is impractical to open accounts for all of the various classifications to which expense or income items might be charged or credited. Accounts are opened for those classi­fications which have relatively frequent or large entries. Infrequent and unimportant items may be posted to this account with a word of explanation in the spaces provided in the account. Illustrations of items which should be car­ried to this account are shown in many of the foregoing il­lustrations. 
THE TRIAL BALANCE AND CLOSING 
THE BOOKS 

THE TRIAL BALANCE 
It is ordinarily the custom at the end of each month for the bookkeeper to make a check on the mechanical accuracy of his work. This check need not be made monthly unless the bookkeeper desires to assure himself of the fact that the total amounts which he has entered on the debit side of the ledger are equal to the total amounts which he has entered on the credit side, and vice versa. Not infrequently small sets of books are checked in this way only at the end of the fiscal period. 
The process of proving debits and credits in a ledger is known as "the taking of a Trial Balance." It consists of the following operations: 
1. 	
Finding the debit or credit balance of each account. 

2. 	
Listing the names of the accounts on a sheet of Journal paper and transferring the balance of the account, if it be a credit balance, to the credit column of the Journal paper, and if it be a debit balance, to the debit column of the Journal paper, the credit column being the right-hand money column, and the debit column being the left-hand money column. 


If the detail entries have been made correctly to the re­spective sides of the various accounts, the total of all of the debit entries will necessarily equal the total of all of the credit entries. If, therefore, the total amount of the debit entries in any particular account exceeds the total amount of the credit entries, and the total credits are deducted from the total debits, the result will be the excess of debits over credits. This account will then have a debit balance. Whenever such a condition exists, there must be some other account or accounts which have an equal excess of credit entries over the debit entries. To illustrate, we may re­ceive cash from several sources, such as the sale of stock-in­trade and an additional investment by the proprietor. Each of these transactions will cause a debit entry to the Cash 
account and a credit entry to each of the other accounts, respectively, Sales and the Proprietor's Capital account. CASH SALES 100 
100 
1,000 
J. Jones, Capital 1,000 
In the above illustration, the Cash account shows a debit balance of $1,100, while neither of the other accounts, as individual accounts, shows an amount equal to the debit bal­ance in Cash. Still, when taken together, the total of the credit balances is equal to the total of the debit balance in the Cash account. This same principle applies throughout the ledger. Therefore, when each account is balanced, if the work has been mechanically accurate, the total of all the debit balances of the ledger will exactly equal the total of all of the credit balances. The Trial Balance will be as 
follows:  
TRIAL BALANCE  
Cash -------------------------­----------------------­----------$1,100 Sales -----------------­------------------------­ $ 100  
J. Jones, Capital ------------------------­---------------­----­-----­ 1,000  
$1,100  $1,100  

Figure 27 shows a Trial Balance taken from accounts similar to those which have been discussed in the foregoing pages. As many of the items used for illustrative purposes could not be carried through, due to repetition, etc., the figures of the Trial Balance will not be the exact ones which would have been accumulated in the accounts shown in the previous illustrations. 
CLOSING THE BOOKS 
.ADJUSTING ENTRIES 
Most ranchers maintain a fiscal period or year which is the same as the calendar year. At the end of this period, it is necessary to "close" the books, after which statements should be made up. These statements, if properly pre­pared, will show the results of the year's operations and the financial condition of the business. 
Where the improper procedure prevails of making many or all of the expenditure and disbursement entries from the returned checks, it will be necessary to exercise double vigilance at this time. A careful investigation should be made to determine all outstanding checks and all outstand­ing liabilities for which no checks have been issued. All such items should be charged to the proper asset or expense accounts in the manner which has been explained through­out the preceding pages (see especially pages 114 to 118). The credit entries may all be made to liability accounts opened under the name of the individuals or concerns to whom the rancher is indebted or to whom he has given the uncashed checks. 
It may seem odd to some that items for which checks have been given should be brought on the books as liabilities. Where the practice is followed of not entering checks until they are returned by the bank some confusion is quite liable to occur if any checks are recorded as credits to the bank account before they have been returned. All checks which have been issued represent disbursements of cash which have actually been made but which have not, as yet, reduced the balance of cash in the bank. The effect of handling these entries in this manner will be to leave the cash bal­ance at a figure somewhat greater than the true balance and to off set this error by a corresponding increase in the liabilities.1 When the outstanding checks are later received 
1This procedure will cause the Balance Sheet ratios to be somewhat less favorable than would be the case if the cash were reduced in place of increasing the liabilities. This discrepancy will probably be 
from the bank by the accountant or the rancher, they may then be recorded in the "Bank" and "General" columns of the Journal in the manner shown by entry No. 4 of Figure 
19. These entries will reduce the bank balance to its proper amount and eliminate the liabilities brought on the books at the time they were closed. 
At the end of the year it is customary to give especial at­tention to the accounts and notes receivable which are car­ried on the ledger. It may be definitely known that some of these will not be paid, and in other cases there may be doubt as to the amount which will be paid. 
If the rancher is reasonably certain that one or more of his accounts will not be paid such accounts should be "writ­ten off," or closed. To write off the account, the balance is placed in both the left-and right-hand "General" column of the Journal. The figure in the left-hand column is car­ried to the debit side of a new account known as "Loss on Bad Debts." The figure in the right-hand column will be carried to the credit side of the account which is to be writ­ten off, thus balancing that account. (See entry No. 1, Fig­ure 27.) 
In other cases where there is some question as to whether all or a portion of the account will be received, the account should not be written off. The anticipated loss should be brought on the books so that the net amount of the accounts receivable will represent only that amount for which it is expected that payment will be received. In mak­ing this adjustment, the first step is to estimate as accur­ately as possible the probable loss. When this figure is de­termined it will be placed in both the left-and right-hand "General" columns of the journal. The figure from the left­hand column will then be carried to the debit side of the "Loss on Bad Debts" account. Inasmuch as it is not defi­nitely known that the amount estimated will be lost in con­nection with any of the specific accounts receivable which 
of less importance than the risk of error involved in other methods which must be superimposed upon physical conditions and customs prevalent in the livestock industry. 
are now considered, the credit side of this entry will not be carried to these accounts. It will be placed in a new ac­count known as "Reserve for Bad Debts." (See entry No. 2, Figure 27.) 
All true accounts receivable have debit balances. When the total sum of these debit balances is shown on the bal• ance sheet the credit balance of the "Reserve for Bad Debts" account will be deducted so that only the net amount will be included in figuring up the value of the assets, thus: 
Accounts Receivable_______________ ___________ $2,260.00 
Less Reserve for Bad Debts________________ 200.00 

$2,060.00 
After completing the necessary corrections for Cash and for Accounts and Notes Receivable, the inventory adjust­ments may be taken care of. At the close of the year the "Inventory" accounts maintained for each class or kind of livestock and for feed will show the values at the beginning of the present period. These must be adjusted so that they will show the values at this time, the end of the present period. The values of the old inventories are, therefore, closed into the "Profit and Loss" account as debits and credited to the respective "Inventory" accounts. This "closes" the inventory accounts as they have equal amounts posted to each side. The values of the new inventories (shown as the total of Column No. 3 on the Cattle Inventory sheet, made up for the new year, and for the figures showing the values at the end of the year on each of the other inventory sheets) will then be charged to the respective "In­ventory" accounts and credited to the "Profit and Loss" ac­count. The results of these entries is to bring into the "Profit and Loss" account figures which will reflect in­creases or decreases in the carrying value of the particular kind of feed or livestock for which the entries are made. 
This procedure will be carried on for each kind of livestock 
or feed for which separate inventories are maintained. (See 
entries 3, 4, 5, 6, 7, 8, 9, 10, Figure 27.) 
The entering of depreciation will involve entries to an expense account and to an asset or a valuation account as the case requires. The total amount of the depreciation which is to be charged off at the close of any particular year will be the total of the depreciation column carried for that year on the particular inventory sheet. (See Figures 8 and 9.) The decrease in usable value of these assets result­ing from the ranch operations represents an expense which should be charged to the year's operations. The amount is, therefore, charged to the "Depreciation" account, which is an expense account. The credit to this entry is made in the "Equipment" account if it is equipment depreciation, or to the "Reserve for Depreciation of Improvements" if it is im­provement depreciation that is being recorded. (See Fig­ure 16 and entries Nos. 11and12, Figure 27.) 
In many sets of books the foregoing adjustments are all that may be necessary before the actual closing entries are made if the routine entries have been made correctly. In books kept for the larger ranches substantial accuracy can seldom be obtained without going over the various expense and income accounts to see what items should be accrued and what items should be deferred. This procedure will re­quire a review of the transactions which have caused entries to each expense and income account and a check on the transactions of the business to see if any have not been entered. In most instances a review of the ranch operations and of the journal entries will be required. As each entry or at least each important entry to the income account is reviewed it should be subjected to the following analysis: 
(a) 	Does this represent an item which has been brought on the books but which has not been fully earned? If the entire amount entered has not been earned the unearned amount should not be carried to the "Profit and Loss" account as an earning of the current year. Such unearned amounts should be transferred to an account known as "Deferred Income." An example of such an entry would be where interest had been received in advance. It may be assumed that the maker of a $5,000 6 per cent note made an interest payment on December 1 for the succeeding six months. At the time the $150 was received it would be charged to the bank and credited to Interest Income. Of this amount, only one-sixth would have been earned by the end of the year. Five-sixths, or $125, represents a payment which has been received this year but which will not be earned until after the close of the year, thus bringing it into the operations of next year. One hundred and twenty-five dollars should, therefore, be considered as deferred income. (Entry No. 13, Figure 27.) This same condition might arise on many transactions such as rental income, grazing rights, and oil leases. 
(b) 	Following this analysis each account in the operations of the business should be considered to determine if any income has been earned which has not been brought on the books. Such income having been earned should be shown in the ac­count for the current year. It will, therefore, be credited to the appropriate income account and debited to an account known as. "Accrued Income." As an example, it may be considered that the rancher owns $10,000 worth of 4 per cent bonds, the interest pay­ment dates being April and October. The last interest pay­ment would probably have been received during Octooer paying the interest during the period from April to October 1; therefore, three months interest ($100) has been earned and would be considered as Accrued Income (Entry No. 14, Figure 27). Other occasions might arise in connection with such items as Notes Receivable, Oil Royalties, and Rental Income. 
After the income for the period has been reviewed in this manner, the expense accounts should be subject to the same analysis. 
(a) 	
Has any expense been brought into the books which has not been used? 

(b) 	
Has any expense been used (or incurred) which has not been brought on the books? 


An example of "Deferred Expense" (a) would be the cost of fence wire which had been purchased for repairs amounting to $500, and one-half of it, or $250 worth, was on hand at the end of the year. This wire represents something of value which is on hand; therefore, it should not be charged to the expenses of the current year. The "Repair" account will then be credited with $250 and a new account known as "Deferred Expense" will be debited (Entry No. 15, Figure 27). Other occasions where such adjustments might be necessary would be Table Expense, 'faxes, Insurance, Rent, and Interest. 
Accounting Procedure for Livestock Ranches 185 
A common example of Accrued Expense (b) would arise in connection with Interest Expense. The rancher may have signed a ninety day 8 per cent note for $15,000, interest payable at maturity. Assume he has had the use of the money for thirty days; as a consequence interest has accrued during this time amounting to $100. This amount should be included · in the ex­pense for the current year, and, therefore, it will be charged to the "Interest Expense" account and credited to an account known as "Accrued Expense" (Entry No. 16, Figure 27). Other occa­sions where this might arise would be in Table Expense, Taxes, and Selling and Shipping Expense. 
CLOSING ENTRIES 
The closing entries, like the periodic adjustment entries, are only made at the end of a fiscal period. The adjust­ment entries were required to bring into, or to relieve, the income and expense accounts of certain figures which could not have been placed or adjusted during the year without greatly increasing the detail work. After the adjustments have been made, the balance of each income and each ex­pense account will be "closed" into the "Profit and Loss" account. 
The "Profit and Loss" account is used only at the close of the fiscal period2 and solely for the purpose of accumu­lating the balances of the various expense and income ac­counts together with the various inventory figures other than the inventory of Equipment, Improvements, and Land. 
When these figures have been transferred to the "Profit and Loss" account, all of those which have tended to in­crease the net worth will be on the right side and all of those items which tend to decrease net worth will be re­corded on the left side of this account. The difference between the two sides of the account will then represent the profit or loss for the period. The entries required to trans­fer the figures from the various accounts will first be made 
ZMany bookkeepers have acquired the habit of entering many mis­cellaneous items directly into the "Profit and Loss" account. This practice is not considered good as it confuses individual items with group totals. 
in the Journal. They will then be posted from there to the ledger. The manner of doing this is illustrated in the fol­lowing descriptive entries. 
The closing illustrations start with a trial balance such as might be taken from the books of any rancher who raises cattle, sheep, and goats. These figures as explained in the section on the Trial Balance represent the balances of the various accounts at the end of the fiscal or calendar year. Following the trial balance are the illustrative adjustment entries, at least some of which will have to be made in any set of books. Following these are the closing entries. After the books have been closed, the statements, namely the Balance Sheet and Profit and Loss statement, should be made up. Then the income tax returns will be prepared. Starting with the trial balance, each of these steps (except the income tax statement) is illustrated in the order named. 
TRIAL BALANCE December 31, 1930 Debit Cash on Hand____
______ ___________________ _ $ 12,720.00 
Notes Receivable__________________ Accounts Receivable_________ ___ Cattle Inventory___________________ Goat Inventory__________________ Sheep Inventory______ ______________ _ Feed Inventory_____________ _________ Securities Owned________________ 
Land ----------------------------------------------­
Equipment ___ -------------­Improvements -------------------------------­Reserve for Depreciation on Im­
provements -----------­
Accounts Payable______________________ 
Notes Payable________________________ 
Mortgages Payable_______________________ 
Personal Drawings________________________ 

Capital Account__________________ Cattle Sales_ ____ _ ____________ Mutton Sales_________ _______ 
Wool Sales______________________ 
Goat Sales_
_______ ------­
Mohair Sales_ _________ ______ Service Income__________________ 
_ Grazing Income_ __
____________________ Oil Lease Royalties_ __
_ ___ 
_ _ Interest Income__________________ _ ___ 
Miscellaneous Income ---------­
Cattle Purchases_ ________________ Sheep Purchases________________ Labor -------------------------­Round-Up Expense--------------------­Clipping and Shearing Expense__
_ _ Repairs ----------------------------­Veterinary and Drug Expense__________ Gasoline and Oil_________________________________ Table Expense_____________________________ Selling and Shipping Expense_____________ Feed Expense__
________________________________
____ Taxes and Insurance___________________
_____ Miscellaneous Expense________
_______________ 
12,700.00 2,335.00 34,011.50 
595.00 
840.00 
600.00 9,650.00 68,480.00 
3,560.40 22,500.00 
1,200.00 
13,179.50 1,475.00 2,260.00 
236.00 
175.00 
500.00 
35.20 
165.70 1,210.25 
580.40 1,000.00 
345.00 
244.00 
$190,597.95 Credit 
$ 900.00 
900.00 
1,200.00 41,440.00 
112,839.40 28,755.80 2,150.00 
350.00 
598.75 
452.00 
275.00 
190.00 
120.00 
362.00 
65.00 
$190,597.95 
FIGURE 27 
The University of Texas Bulletin JOIJ/?.IYAL 

FIGURE 28 
Accounting Procedure for Livestock Ranches 189 
JOUf?.NAL 

FIGURE 28 
•If the Miscellaneous Gain and Loss account had a credit balance, it would be closed with the income accounts. H it had a debit balance, it would be closed with 
the expense accounts. 
BALANCE SHEET December 31, 1930 
Current Assets Cash ----------------------------­
Notes Receivable_______ Accrued Income__
____________ Accounts Receivable________ Less : Reserve for Doubt­ful Accounts____
______ 
Inventories: Cattle ------------------­Goats --~------­
Sheep ----------------------­
Securities Owned________ ______ _ 
Total Current Assets Deferred Expense
Feed Inventory_____
______________ Repairs ----------------------­
Total Deferred 
Expense _________ 
Fixed Assets Land ----------------------------­Equipment ----------------­Improvements -----------------­Less: Reserve for De­preciation ---------------­
Total Fixed Assets__ 

Total Assets______ 
ASSETS 
$ 2,260.00 
200.00 
34,341.20 
460.00 
560.00 
22,500.00 1,800.00 
$ 	12,720.00 12,700.00 
100.00 
2,060.00 
35,361.20 
9,650.00 
400.00 
250.00 
68,480.00 2,848.32 
20,700.00 $ 72,591.20 
$ 650.00 
$ 92,028.32 
$165,269.52 
LIABILITIES AND CAPITAL 
Current liabilities 
Notes Payable___
____________ Accounts Payable__
____ _ Accrued Expense_
_____________  $ 1,200.00 900.00 100.00  
Total Current Liabil­ 
ities  -----------·---------·  $ 2,200.00  
Deferred  Income­--··­·······-·-···  125.00  
Fixed Liabilities  
-Mortgages Payable______ _____  41,440.00  
Total Liabilities__
___ 
 

$ 43,765.00 
Accounting Procedure for Livestock Ranches 191 
CapitalCapital, Jan. 1, 1930____
__ 112,839.40 Add : Profits for y~ar_
_ 
9,865.12 
$122,704.52 
Less: Drawings_______ 1,200.00 
Capital, Dec. 31, 1930_
_____ $121,504.52 
Total Liabilities and Capi.tal ----$165,269.52 
NET WORTH SECTION 
PARTNERSHIP BALANCE SHEET 
A-CAPITAL, Jan. 1, 1930______________________ 
$56,419.70 Less: Drawings_____________________________ 600.00 
$55,819.70
Add: One-half Profits_________
_______________ 4,932.56 
Capital, Dec. 31, 1930____________
______________ $ 60,752.26 
B-CAPITAL, Jan. 1, 1930.___ ____________________ $56,419.70 Less: Drawings_______________________________ 600.00 
$66,819.70 
Add: One-half Profits_ ___________ ______
______ 
4,932.66 
Capital, Dec. 31, 1930._________________ __ _ 
$ 60,762.26 
$121,504.52 
NET WORTH SECTION 
CORPORATION BALANCE SHEET 
Capital Stock________ ________________
___ $100,000.00 Surplus, Jan. 1, 1930________________________ 
__
___ _ 
$12,839.40 Add: Profits for year_________________________ 9,865.12 22,704.52 
$122,704.52 
Note.-On Corporation Balance Sheet $1,200.00 should be shown as a Current Asset as "Due from Officers." This $1,200.00 on part­nership and individual balance is shown as Drawings. 
There will be no change in any other account as the Surplus ac­count takes care of the $1,200.00 on the credit side. 
FIGURE 29 
PROFIT AND LOSS STATEMENT 
For the Period, January 1, 1930, to December 31, 1930 

Cattle Sales___________ Inventory, Jan. 1, 1930 _____ $34,011.50 Purchases ---------------13,179.50 
$47,191.00 Deduct: Inventory, Dec. 31, 1930 34,341.20 
Gross profit from cattle_ 
Mutton Sales______ Wool Sales 
Total sheep sales________. Inventory, Jan. 1, 1930 ____ $ 840.00 Purchases -----------1,475.00 
$ 2,315.00 Deduct: Inventory,
Dec. 31, 1930 ____ 560.00 
Gross profit from Sheep_ Goat Sales. Mohair Sales 
Total Goat Sales______ Inventory, Jan. 1, 1930 _____ $ 595.00 Deduct: Inventory, Dec. 31, 1930 ------460.00 
Gross profit from Goats__ 
Total gross profit ____ 
Operating Expenses 
Labor -------------------------------­
Round-Up Expense_______ 
Clipping and Shearing 
Expense ------------------­
Repairs -----------------­

Veterinary and Drug 
Expense ------------------­
Gasoline and Oil_________ 
Table Expense _________________ 
Selling and Shipping 
Expense ---------------­
Taxes and Insurance________ 
Feed Expense________________________ _ 
Miscellaneous Expense_____ _ 
Depreciation Equipment______ 
Depreciation Improvements_

Bad Debts ____________________ _ 
Total Operating Expense.... 
Net Profit from Operations 
$28,755.80  
12,849.80  
$15,906.00  
$ 2,150.00  
350.00  
$ 2,500.00  
1,755.00  
745.00  
$ 598.75  
452.00  
$ 1,050.75  
135.00  
915.75  
$17,566.75  
$ 2,260.00  
236.00  
175.00  
250.00  
35.20  
165.70  
1,210.25  
580.40  
345.00  
1,200.00  
244.00  
712.08  
900.00  
275.00  
$ 8,588.63  
$ 8,978.12  

Net Profit from Operations(Carried forward) __ 
_ $ 8,978.12 Other Income 
Service Income______ ____ $ 275.00 
Grazing Income_____ _ 190.00 
Miscellaneous Income_ ___ 65.00 
Oil Lease Royalties______ 120.00 

Interest Income______________ 337.00 
Total Other Income______ 987.00 Other Expense
Interest Expense____________________ 
100.00 
887.00 
Net Profit_____________ 
$ 9,865.12 
FIGURE 30 
THE UNIVERSITY OF TEXAS 
BUREAU OF BUSINESS RESEARCH 

A. B. Cox, Director 
F. A. BUECHEL, Assistant Director 
Staff  
Elmer H. Johnson Rudolph Grossmann R. V. Shirley  Herschel C. Walling Arthur H. Hert I. B. Williamson  

Martha Ann Zivley, Secretary 
Publications 
The publications of the Bureau of Business Research comprise the following series: 
Series P-Periodical Series 
1. 	TEXAS BUSINESS REVIEW (Monthly) 
2. 	Periodical services to trade organizations or groups of business concerns Series M-Research Monographs Series S-Special Reports 
Questions concerning these publications should be addressed to the Bureau of Business Research, The University of Texas, Austin. 
Publications Ready for Distribution 
M-1. The Possibilities of Cotton Manufacturing in Texas. Price, 50 cents. M-2. AMarket Analysis of the Cattle Jnd,ustry of Texas. Price, $1.00. M-3. What Place Has the Advertising Agency in Market Research'/ 
Price, $1.00. M-4. Methods for the Study of Retail Relationships. Price, $1.00. M-5. A System of Accounting Procedure for Livestock Ranches. 
Price, $1.50. 
M~6. 	An Analysis of Credit Extension in 29 Texas Department Stores by Occupa.tional Groups. Price, $1.00.