30 BULLETIlsr 1095, U. S. DEPAETMENT OF AGRICULTUEE. 



5ESSENTIALS OF AN ADEQUATE ACCOUNTING SYSTEM. 



The items of information that an adequate system of accounting 

 may furnish are many, but a few of the more important ones will be 

 mentioned. 



One important item is the information as to whether the business 

 as a whole has been conducted at a profit or at a loss. This, of course, 

 the books must reveal; but they should reveal much more than the 

 mere fact that a profit or loss has resulted from the operation. They 

 should show which particular part of the operation has been con- 

 ducted at a profit and which has resulted in a loss. Further, it should 

 be readily seen what particular item of expense or income has had the 

 largest part in accomplishing the result. In order that this may be 

 thoroughly understood, it is necessary to know the exact effect of this 

 item in previous years. This makes it imperative that the statement 

 be prepared on a comparative basis and in a way that will allow each 

 item to be shown side by side with the same item of previous periods. 



Another point of information is the balance' sheet or statement of 

 the financial condition. This is often thought to be of less im- 

 portance than the statement of profits. Actually, however, it is of 

 equal if not greater importance, and can reveal an almost untold 

 amount of information when properly prepared and studied. Like 

 the profit-and-loss statement, to be of real value, it must present 

 the financial progress that has been made in addition to the exact 

 financial condition at a certain date. A statement of this kind is 

 fast becoming a necessary part of the information required by many 

 banks in passing upon an application for a loan, and one must be 

 submitted to the Treasury Department as a part of the income- 

 tax report. It should be prepared in the form recommended by 

 the Federal reserve bank, and the accounting system should be so 

 constituted. 



In order that two items may be compared, they must be alike. 

 It is impossible to compare items on the financial report at different 

 dates unless they are alike. It means nothing to compare the 

 amount expended for repairs this year with that of last year, unless 

 it is known that exactly the same kind of items have been charged 

 to the open account each year. It is imperative, therefore, that 

 the same ledger accounts be kept in exactly the same manner over 

 a period of years if any reliance is to be placed on the reports. 

 Often it is desirable to compare the results obtained by another 

 organization in the same line of business. This is impossible unless 

 the two organizations use a uniform and standard classification 

 of ledger accounts. These accounts should be so arranged in the 

 ledger that the statement just referred to" can almost be prepared 



