19 Jan Agriculture and Fisheries – Basic Accounting Concepts
Well for starters we must know what are our Assets and Liabilities. What are they? Is that difficult? Then we must find out as these are the basic components of the business.
Anything physical or right belonging to the farm business or individual that has value at a given time. So if you purchase a land that is an asset, a sow also an asset, if you made a building the total cost is an asset as long as it is for the business.
Question: Is my personal money an asset?
Answer: If we are talking about an individual, “YES” that is your asset. But if we are talking about the business / the farm business, then the answer is “NO”.
Current Assets, Fixed Assets and Other types of Assets will be discussed in the future.
These are obligations from past business transactions. These are bank loans, financing loans and other types of loans / borrowed money for the business. I repeat this is for the business.
Question: If I borrow money to buy a parcel of land, is that considered an asset or liability?
Answer: They are both an asset and a liability.
Question: How can that be?
Answer: The moment you borrow money you have incurred a liability and the moment you bought the land you have acquired an asset.
Now, if the value of my assets are more than my debt, what is the difference? The answer is “Net worth” or “Equity”.
In mathematical terms, this is:
- ASSETS – LIABILITIES = EQUITY
It is the business’ total value. In layman’s terms, this is what’s left after exhausting your liabilities.
So for example, here are the following transactions:
- The personal cash of Jason was used to buy a COW worth 9,000 pesos.
- Jason borrowed money from the bank worth 15,000 pesos for his future cow farming requirements.
How much is the total assets? 24,000 pesos both the money and the value of the cow are assets
How much is the total liabilities? 15,000 pesos
How much is the net worh? 9,000 pesos
Hope that helps!