BOOK-m:i.iI\<; FOB FARMERS. 915 



Profit and Loss Account. 



The Profit and Loss Account will now be prepared as under, the items 

 being transferred to the side opposite to that on which they appear in the 

 ordinary Ledger account (thus adhering to the essential principle of double 

 entry, that every debit must have a corresponding credit) : — 



Profit and Loss Account. 

 Dr. {Losses). £ 8. d. Cr. (Gains). £ s. d. 



To Horse 10 By Stock 200 



.. Plant 10 „ Crops 160 



.. Wages 120 „ Dairy 10 



„ Rent ... 

 „ Interest 

 „ Capital a / c (net gain) 



£370 



It will be noticed that this — like the wages, rent and interests accounts — 

 carries out the second important rule referred to — "Debit losses; credit 

 earns." 



The Americans, following the order in which these items appear, are 

 slightly more accurate, and usually call this a loss and profit account. 



The way in which the profits have been made is thus disclosed. If 

 the horse-hire, wages, rent, &c, were charged to the crops, and the book- 

 keeping carried out in further detail, the statement would have a different- 

 aspect, though the result would be the same. 



The profit of £100 shown in this account represents an increase in the 

 farmer's wealth, and is credited to, i.e., transferred to the opposite side of, 

 the Capital account, the business now representing £100 more than was 

 originally put into it. A loss would be debited to the Capital account as in 

 the transactions for 1921, which are shown hereunder. The Capital account 

 is then balanced and ruled off. 



Balance Sheet. 



As the name suggests, this is not a true account, but a mere statement of 

 liabilities (on the left) and assets (on the right). It has no debit or credit 

 sides, the words u To " and " By " are not used, and the entries are not trans- 

 ferred from one side of an account to the opposite side of the balance- 

 sheet. Instead, the various " Balance " and " Valuation " entries are brought 

 straight down and entered on the same side of the balance-sheet, which 

 should then balance, i.e., the totals of the two sides should be equal. 



The balance-sheet will appear as follows : — 



Balance-sheet. 

 Liabilities. £ s. d. i Assets. £ s. d- 



£1,200 



£1,200 



It will be noticed that the actual return has been £50 for the use of the 

 £1,000 capital and £100 as a general profit. 



