2 BULLETIN 865, U. S. DEPARTMENT OP AGJHCITXTUKE. 



should be arranged in the form known as a Balance Sheet, with assets 

 on the left and liabilities on the right. . (See illustration on p. 34.) 

 The difference between the total assets and total liabilities mil repre- 

 sent the net worth, either as capital stock, surplus, deficit, or good 

 will. These accounts are described at length under their respective 

 captions. The assets should be arranged in the order of their prob- 

 able cash realization and the liabilities in the order of their probable 

 priority as to liquidation. A set of Ledger sheets should be headed 

 with the account captions as shown herein. 



The items appearing on the Balance Sheet should then be entered 

 in the Journal, 1 the amount of each item being posted from the 

 Journal to the proper Ledger account. As succeeding transactions 

 are classified, entered in the Journal, and posted to the proper Ledger 

 accounts, the Ledger will contain a summary of the financial facts of 

 the business, arranged under their proper designation, each summary 

 being known in bookkeeping as an account. The various accounts 

 should be classified according to their nature into the following groups, 

 which are defined in order that it may be clearly understood how they 

 differ from one another. 



Current Assets are items of cash and those which can be readily 

 converted into cash or its equivalent. 



Fixed Assets are those of a permanent nature which are used in 

 conducting the business, such as land, buildings, machinery and 

 equipment. 



Prepaid Expense is that which is paid in advance of usage. 



Current Liabilities are obligations which are due, or about to become 

 due, or are those which are increasing daily but are not payable until 

 some future date. 



Reserve accounts are those by means of which a certain amount is set 

 aside out of the earnings of the company for some specific purpose. 



Net Worth accounts are those which represent the ownership, 

 including any accumulated profits or losses of the compan}*. 



Income accounts are those through which the revenue of the com- 

 pany is reflected. 



Expense accounts are those which reflect the cost of conducting 

 the business. It should be remembered that the cost of conducting 

 the business may not be actually paid in cash during the period in 

 which the expense is incurred. 



Index tabs labeled with the above headings will be found convenient 

 in locating the various Ledger accounts. 



The necessity of making the complete segregation of accounts 

 shown in the following charts may be questioned by those who have 



1 Tee U. S. Department of Agriculture Bulletin No. 559, Accounting Records for Country Creameries, 

 by John R. Humphrey and G. A. Xahstoll. l'J17. 



