38 BULLETIN 865, IT. S. DEPARTMENT OF AGRICULTURE. 



Additional Equipment Appropriation. 



Debit: 



Credit: 



1. At the close of the period with the 



1. With the debit balance at the close 



proportion to apply to the pur- 



of the fiscal year. (Debit Loss 



chase of additional equipment. 



and Gain.) 3 



It is suggested that instead of carrying the reserve set up for the purpose of expansion 

 to the Sinking Fund Reserve account, these accounts just illustrated be set up, in 

 order that the books may reveal the entire history of the expansion. As before stated, 

 the sinking fund should be an amount of cash actually set aside to liquidate a fixed 

 liability at some future date. It should never be maintained for the purpose of de- 

 fraying current expenses. 



THE NATURE OF BOOKKEEPING. 



In order that the procedure herein described may be more clearly understood the 

 nature of bookkeeping is briefly discussed here. 4 

 The Standard Dictionary defines bookkeeping as follows: 



The art, method, or practice of recording business transactions distinctly and 

 systematically in blank books provided for the purpose, so as to show goods and 

 moneys received, disposed of, and on hand; the credits given, and the assets, 

 liabilities, and general status of the business, person, or house. 

 If bookkeeping is "the art of recording business transactions." the account must be 

 considered the material expression of this art, since all bookkeeping eventually centers 

 in the construction of certain accounts which will reflect the result of business transac- 

 tions. 



For the purpose of recording and expressing the "general status of the business," 

 accounts are classified as: 



Asset Accounts: Representing all values which are owned and invested in the 

 business; or earned, although not received, and those which have been expended 

 for the benefit of a future period. 



Liability Accounts: Representing all debts to outsiders due and now payable, 

 due but not yet payable, and incurred to become due and payable at some future 

 date. 



Net Worth Accounts: Representing the original proprietorship and the effects 

 of the operations on the proprietorship. 5 

 Since Asset, Liability, and Net Worth accounts are representative of the actual 

 properties themselves, these names are used to designate the properties, as well as their 

 representative accounts. 



Since the Assets are all that are owned and the Liabilities are all obligations to out- 

 siders, the net worth must of necessity be the difference between the first two, or the 

 rights of the proprietorship to the excess thus determined. The following statement, 

 therefore, shows the equality existing beween the total assets on the one side and the 

 Bum of the liabilities and net worth on the other. 



3 Care should be exercised that this balance be transferred to Loss and (lain only after the net profit has 

 been determined, as shown by the form illustrated on pp. 35 and 30. 



1 Bookkeeping as discussed herein is limited to what is known as the double-entry method. 



» Income and Expense accounts arc Net Worth accounts of a temporary nature. They arc fully de- 

 scribed on pages 23 to 30 for the purpose of showing the details of the operations and their ultimate effect 

 on net worth. 



