30 BULLETIN 1095, U. S. DEPARTMENT OF AGRICULTURE. 
ESSENTIALS 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 ina 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, 1t 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 


