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Agriculture Handbook No.163

August 1959

Uniform Accounting

for Locker and Freezer

Provisioners

» by Thornton W. Snead, Sr.

and Paul C. Wiikins

.^*

Farmer Cooperative Service

U. S. Department of Agriculture
FARMER COOPERATIVE SERVICE

U. S. DEPARTMENT OF AGRICULTURE

WASfflNGTON 25, D. C.

Joseph G. Knapp, Administrator

The Farmer Cooperative Service conducts research studies and service

activities of assistance to farmers in connection with cooperatives

engaged in marketing farm products, purchasing farm supplies, and

supplying business services. The work of the Service relates to

problems of management, organization, policies, merchandising, product quality, costs, efficiency, financing and membership.

The Service publishes the results of such studies, confers and advises

with officials of farmer cooperatives; and works with educational

agencies, cooperatives, and others in the dissemination of information

relating to cooperative principles and practices.

Acknowledgment: The National Institute of Locker and Freezer Provisioners was instrumental in bringing together a committee to consider a uniform accounting system for the industry. Thornton W.

Snead, Sr., Consultant on Uniform Accounting Systems and Procedures, did the basic work under contract with Farmer Cooperative

Service. Paul C. Wilkins of Farmer Cooperative Service was

coordinator of the project and co-author of this Guide., Robert L.

Madeira, Executive Director, National Institute of Locker and Freezer

Provisioners, and J. L. Pidcock, Assistant Secretary of Marketing,

Illinois Agricultural Association, made valuable contributions in

planning the system.

This study was conducted under authority of the Agricultural Marketing

Act of 1946 (RMA, Title II).

For sale by the Superintendent of Documents, U.S. Gavernmenf Printing Office, Washington 25, D.C.
Contents

Page

The LFP System 1

Advantages i

Flexibility 2

Operating statement and balance sheet 2

Explanation 2

Sale of services 3

Sale of merchandise 3

End results 3

General description of system 8

Flow of accounting information 8

Identification of accounts 9

Basic classification of accounts 9

Numerical chart of accounts 10

Expansion chart 13

Four basic accounting forms 15

Form ''A'' - Cash Received and

Sales Record 15

Form ''B'' - Cash Disbursed and

Purchase Record 16

Form ''C'' - General Journal 16

Form ''D'' - General Ledger 17

Importance of sales tickets 31

Using the LFP System 31

Operating statement accoimts 31

Sales 32

Storage revenue 32

Cost of sales 32

Storage department 33

Processing department 33

Cost of merchandise sold 33

Interdepartmental transfers 34

Labor allocation— 35

Gross margins 37

Operating expense 37

Plant expense 39

Selling and delivery expense 39

General and administrative expense 40
Contents - Cont.

• Page

Other income--other outgo 42

Other income 42

Other outgo 42

Balance sheet accounts 43

Current assets 43

Cash - 43

Receivables 43

Inventories 45

Investments 45

Prepaid accounts ' 46

Fixed property and equipment 46

Liabilities 47

.Payables 47

Accrued expenses 48

Reserves 48

Deferred locker rental revenue 48

Net worth 49

Posting to the General Ledger 50

Trial Balance 50
Guidß to Uniform Accounting for

Locker and Freezer Provisioners

by

Thornton W. Snead, Sr.

and

Paul C. Wilkins

Locker and freezer provisioners are

faced with increasing competition,

demands for new services, and narrowing

marketing margins. Greater efficiency in

procurement, processing, and merchandising is necessary not only to the successful operation of these businesses, but,

ultimately, to their very survival.

Recordkeeping in the industry has, in

general, failed to keep pace with changing

needs. The result is that most provisioners do not have current, accurate

accoimting information readily at hand to

help them make sound business decisions

affecting the efficiency of their operations.

Better financial records would help

locker and freezer provisioners operate

more efficiently and thus permit lower

marketing margins. This would benefit

both producers and consumers. Realizing

this. Farmer Cooperative Service, in

cooperation with others, undertook to

develop a uniform accounting system for

the industry.

This Guide explains the imiform

accounting system and gives instructions

for operating it. Sample forms and entries

illustrate basic procedures -- the emphasis is on visual presentation. The

Guide is not intended to teach accounting,

nor is it a textbook of accounting principles. It is, in fact, a Guide.

The LFP System

Successful operation in this highly competitive field requires maximum efficiency.

This, in turn, requires current, accurate

information upon which management can

base decisions. This Uniform Accoimting

System for Locker and Freezer Provisioners (LFP System) is designed to

furnish such financial information to manigement.

Advantages

Adopting a uniform accounting system

will enable the locker and freezer provisioning industry to develop financial,

production, and other operating standards

heretofore imavailable. These standards

will provide guides for operators to
measure their efficiency and improve their

operations.

The LFP system provides more control of labor costs and materials than is

foimd in most of the systems that firms in

this industry now use. Sales and costs of

sales are departmentalized so as to arrive

at gross margins by departments. Operating expenses are classified as plant,

selling and delivery, and general and

administrative. This information provides

facts and figures which will help in planning and can lead to better management.

An important advantage will be that

all provisioners using the LFP system

will be speaking the same language. Cost

of sales, gross margins, and operating

profit will not mean one thing to one operator and something entirely different to

another. Thus, provisioners will be in a

better position to compare their plants

and operations and, through this exchange

of information, improve their efficiency.

Flexibility

The LFP system is flexible enough to

meet the needs of most firms in the industry. It provides procedures for plants

engaged in custom storage and processing,

and in processing plant-owned products

for sale. It is suitable for the various

types of business organizations -- single

proprietorships, partnerships, cooperative

corporations, and corporations that are not

cooperatives.

Since the majority of the businesses in

this industry are single proprietorships

or partnerships, the Guide uses their

customary accounting terminology. Cooperatives and other corporations use some

different accoimts and terminology. In the

case of a corporation that is not a cooperative, the difference lies in the net worth

accounts. (See discussion of net worth

accounts.)

Incorporated cooperatives use still

different terminology. These organizations use the term ^'revenue^' instead of

^'income^^; ^'net savings^' instead of ''net

profit^^; and ''undistributed savings^' in

place of "surplus.'^ The major net worth

accounts for incorporated cooperatives

also are shown in the net worth section of

this Guide.

Most firms in the industry do not have

accountants trained to operate complex

cost accoimting systems. The LFP system

has been designed, therefore, to be used

by anyone with a knowledge of double entry

bookkeeping. The importance of cost and

speed in providing information for management also has been kept in mind.

Firms adopting the LFP uniform system

probably will need to make some changes

in their recordkeeping. Generally these

changes will be minor and will be in accordance with accepted accounting procedures.

Operating Statement and Balance Sheet

The operating statement and the balance sheet (statement of assets, liabilities,

and net worth) are the immediate end

results of recordkeeping or accounting.

However, this Guide presents them first

rather than last. Why? Because seeing

the finished product should make it easier

to imderstand the accounting procedures

and the forms used.

Explanation

The next few paragraphs explain briefly

how the sample operating statement is set

up.

Sales in the locker and freezer provisioning industry fall into two distinct
classifications -- sale of services and

sale of merchandise. The LFP uniform

accoimting system is tailored to provide

meaningful information on these two

classifications.

Sale of Services

Services also are divided into two

groups -- storage and processing. Storage

consists of annual and short-term locker

rentals, and commercial or bulk storage.

Processing services include custom processing for patrons, and processing plantowned products for sale.

In the latter situation, the cost of

processing plant-owned food products is

transferred at the end of the accounting

period from the processing department to

the department handling the sale of the

product. This procedure, called an interdepartmental transfer, is described in detail

in the section ''Using the LFP System.''

Sale of Merchandise

Merchandise sales are classified as

sales of meats, frozen foods, and other

merchandise.

The heading ''Meats'' includes beef,

veal, pork, lamb, poultry, and specialty

meat products. Whenever these products

have been prepared in any way by the

processing department, the cost or estimated cost of direct processing labor and

supplies is charged to the meat sales department as part of the cost of goods sold.

"Frozen foods" includes frozen packaged foods; bulk fruits (such as 30-pound

tins of cherries or strawberries); and

frozen foods purchased from outside

sources, refrigerated, and sold to customers.

"Other Merchandise" consists of

freezers, freezing supplies, and other

merchandise that cannot be classed as

meats or frozen foods. Firms selling

freezers should handle them in a special

account, as shown in the expansion

chart.

End Results

A monthly operating statement similar

to the accompanying one can be prepared

by a locker and freezer provisioner who

adopts the LFP system. It uses the two

basic classifications of sales described in

the preceding section -- service and merchandise. Following the sales figure is

the cost of sales; beneath that, gross margins. Up to this point the statement has

been departmentalized so that gross margins can be calculated for each major

activity.

Operating expenses are not departmentalized in the same manner. They are

classified into plant, selling and delivery,

and general and administrative expense.

The balance sheet, which follows the

operating statement, is typical of most

such statements found in accounting

systems. It is given to assist locker and

freezer provisioners in preparing statements of their own. It needs no special

explanation here.
Acct.

No. or

class.^

(400) Sales

(502-a)

Cost of Sales

Typical Monthly

OPERATING STATEMENT

Using the LFP Uniform System of Accounting

NOTE - Figures used here are fictitious - For illustration only

Direct laborprocessing

(502-b) Processing

supplies used

(502-c) Inter-dept. transfer

Cost of mdse. sold

(500) Total cost of sales

Gross Margins

%-Margins to net sales

8,788.00

4,112.00

1,488.00

(428.00) 428.00

4,595.00

5,023.00

1,102.00

18.0%

2,180.00

68.1% - 1,060.00

1,040.00

49.5%

2,180.00

31.9%

1,050.00

100.0%

520.00

19.3«

SERVICES MERCHANDISE

TOTALS Storage

401

$1,050.00

Pro'ss'g

402

Meats

404

$6,125.00

Frozen

Foods

405

$2,700.00

Other

406

$12,900.00 - 100.0% $2,100.00 $925.00

1,078.00

4io.oa

525.00

525.00

400.00

43.2%

(10) Operating Expense

Plant 1,023.00 - 7.9%

Selling and delivery 1,222.00 - 9.5%

General and

administrative

Total operating exp.

1,262.00 -

3,507.00 -

9.8%

27.2%

Operating Profit 605.00 - 4.7%

(700)

(800)

Add: Other income

Deduct: Other outgo

207.00

228.00

(21.00)

Net Profit - before taxes $584.00

Sales

Cost of sales

Operating expense

Operating profit

100.0%

68.1%

27.2%

4.7%

100.0%

^Numbers ending in zero identify classifications of accounts. Other numbers identify specific accounts.
.ccount

fumber OPERATING EXPENSE

11

13

14

15

16

18

19

21

31

32

35

36

Plant

Indirect labor $130.00

Plant supplies 50.00

Power, light, heat and v/ater 300.00

Repairs - maintenance 110.00

Rent 130.00

Laundry 32.00

Depreciation - building and equipment 210.00

Taxes - real estate, etc. 61.00

Selling and Delivery

Wages, salaries, commissions 600.00

Advertising - promotion 237.00

Truck (delivery) expense 215.00

Depreciation - truck(s), auto 170.00

General - Administrative

Salaries - off./part./prop. 500.00

Salaries - office 275.00

Office supplies, postage 78.00

Insurance - other than life 108.00

Dues and subscriptions 15.00

Telegraph and telephone 42.00

Bad debt expense 64.00

Donations 10.00

Travel and entertainment 70.00

Payroll taxes 46.00

Other taxes and licenses 17.00

Legal and prof, fees 25.00

Depreciation - office equipment

Miscellaneous 12.00

$1,023.00

1,222.00

51

52

54

55

56

58

59

61

62

63

64"

65

66

67 Miscellaneous 12.00 1,262.00

Total operating expense 3,507.00

OTHER INCOME

701 Discovmts earned

703 Interest and earnings - financing 118.00

704 Bad debts recovered 109.00

706 Cash - over and short (20.00) 207.00

OTHER OUTGO

801 Discounts (cash) allowed

802 Interest expense 116.00

804 Life insurance expense LL¿.W ¿.¿.O.\J\J
Account

Number

TYPICAL BALANCE SHEET

Using the LFP Uniform System of Accounting

Note - Figures used here are fictitious- for illustration only

ASSETS

Current Assets

101 Cash - in office $300.00

102

103 Inbank(s) 6,702.00 $7,002.00

104

111 Notes receivable - due from customers 786.00

112

113 Accounts receivable - due from customers 8,435.00

114 Accounts receivable - due from officers/employees 346.00

115 Bank - financing reserve 387.00

116 9,954.00

251 Less: Allowance for doubtful accounts 962.00 8,992.00

Inventories

131 Meats and poultry - for resale 398.00

132 Frozen foods - for resale 2,964.00

133 Freezers - for resale 2,796.00

134 Freezing supplies - for resale 798.00

135 Processing supplies 485.00

136

137 7,441.00

Total current assets 23,435.00

Investments

141 U. S. bonds

142 Cash surrender value - life insurance

143

Prepaid

161 Interest

162 Taxes

163 Insurance

164

Fixed Property and Equipment

171 Land

172 Building

253 Less: Allowance for depreciation

173 Plant equipment

253 Less: Allowance for depreciation

174 ' Truck(s) - automobile(s)

253 Less: Allowance for depreciation

175 Office equipment

253 Less: Allowance for depreciation

Total assets

750.00

1,079.00

1,829.00

78.00

167.00

375.00

620.00

4,800.00

$18,650.00

6,520.00 12,130.00

10,555.00

. 4,250.00 6,305.00

4,875.00

2,860.00 2,015.00

650.00

250.00 400.00 25,650.00

• $51,534.00
TYPICAL BALANCE SHEET - Cont

Account LIABILITIES

Number

Current Liabilities

201

202

Accounts payable - trade

203

204

Notes payable - trade

205 Notes payable - bank(s)

221

222

Accrued interest payable

Accrued salaries and commissions

223

224

Accrued payroll withholdii^s

225

226 Accrued sales taxes payable

Total current liabilities

241

Long Term

Mortgage payable

$1,876.00

1,793.40

5,000.00

86.00

74.00

127.00

204.00

$9,160.40

3,500.00

NET WORTH

311

312

313

314

351

351

Proprietors capital account

Proprietors drawing accoimt

Profit and loss account

Profit and loss - current period

Total liabilities and net worth

35,000.00

(1,700.00)

4,989.60

584.00 38,873.60

$51,534.00
General Description of System

The heart of the LFP system lies in

four basic accounting forms, which are

designated in this Guide as ''A/' ''B/'

''C/' and ''B/' They are described

briefly here and are discussed in detail

and illustrated in the section ''Four Basic

Accounting Forms/'

Form ''A'' is used to record all cash

received and all sales. This information

comes from sales tickets, order forms,

and similar records. Form ''B^' is a record of cash disbursed and purchases.

These figures come from records of payments, such as check books, and from invoices for purchases. Form ''C,'' th(

General Journal, is provided for end-ofthe-period entries, such as depreciatioi

and allowance for doubtful accoimts.

At the end of the accoimting period --

usually the end of each month -- informatioi]

from Forms ''A'' and ''B'^ is summarized

and posted to Form ''D,'' the General

Ledger. The accoxmting information from

Form ''C,'' the General Journal, also is

posted to the General Ledger at the end of

the month.

Flow of Accounting Information

Form ^'A'

CASH RECEIVED and SALES RECORD

Record on thisform all cash receipts and charges.

The form provides for: separating sales by departments; recording sales tax and carrying

charges; debits and credits to accounts receivable, notes receivable, and other General Ledger

accounts.

Form'^B'

CASH DISBURSED and PURCHASE RECORD

Record on this form all withdrawals from banks.

This form provides for: recording direct labor

costs of processing, operating expenses by function, purchases by sales classification, and debits

and credits to other General Ledger accoimts.

Form ''C'

GENERAL JOURNAL

Record end-of-the-period entries, such as allowance for doubtful accounts, depreciation, purchases

to be paid for at a later date, and interdepartmental

transfers.

Form ''D'

GENERAL LEDGER

Set up and indexed to

conform to the numerical chart of accounts.

This chart illustrates how accounting information flows through the system. It also

shows the relationship between Form ''D,'' the General Ledger, and the other three

forms.

8
Identification of Accounts

In the LFP system, accounts are classified by numbers

instead of names. Numbers are used because it is easier

to memorize them and much easier to insert them in

worksheets and forms.

Basic Classification of Accounts

Here is the basic classification of accounts. Similar

accounts are grouped together to assist operators in

remembering them. For example, the 400 group designates

sales and service income, while the group numbered below

100 designates operating expenses.

OPERATING EXPENSES in the General Ledger are numbered from . 10 to 99

ASSET accounts in the General Ledger are numbered from 100 to 199

LIABILITY accounts in the General Ledger are numbered from 200 to 299

NET WORTH accounts in the General Ledger are numbered from 300 to 399

SALES accounts in the General Ledger are numbered from 400 to 499

COST OF SALES accounts in the General Ledger are numbered from 500 to 599

OTHER INCOME accoimts in the General Ledger are numbered from 700 to 799

OTHER OUTGO accounts in the General Ledger are numbered from 800 to 899
Numerical Chart of Accounts

This detailed numerical chart covers

the accoimts most locker and freezer provisioners will need. There are unassigned

numbers in the chart to take care of any

accounts that might be required for operations peculiar to a particular business.

It is best, however, to keep such extra

accounts to a minimum.

NUMERICAL CHART OF ACCOUNTS

SALES COST OF SALES

Account

Number

Account

Number

401

402

Storage

Processing

501

502-a Direct Labor - Processing

502-b Processing Supplies Used

502-c Direct Cost Charged to

Plant Owned Products

403 503

404 Sales - Meats 504 Cost of Meat Sold

405 Sales - Frozen Foods 505 Cost of Frozen Foods Sold

406 Sales - Other Merchandise 506 Cost of Other Merchandise

Sold

OTHER INCOME OTHER OUTGO

701 Discounts Earned 801 Discounts (Cash) Allowed

702 802 Interest Expense

703 Interest and Earnings -

Financing

803

704 Bad Debts Recovered 804 Life Insurance Expense

705 Gain or Loss on Sale of

'Fixed Assets

805

706 Cash Over and Short 806

707 807

708 808

10
OPERATING EXPENSE

Plant

11 Indirect Labor

12

13 Plant supplies

14 Utilities - Power, Light, Heat,

and Water

15 Repairs and Maintenance

16 Rent

17

18 Laundry

19 Depreciation - Building and

Equipment

21 Taxes - Real Estate, etc.

22

Selling and Delivery

31 Wages, Salaries, Commissions

32 Advertising and Promotion

33

34

35 Delivery Truck Expense

36 Depreciation - Truck and

Automobile

37

38

Account

Number General and Administrative

51 Salaries - Officers/Proprietors/

Partners

52 Salaries - Office

53

54 Office Supplies and Postage

55 Insurance

56 Dues and Subscriptions

57

58 Telephone and Telegraph

59 Bad Debt Expense

61 Donations

62 Travel and Entertainment

63 Payroll Taxes

64 Other Taxes and Licenses

65 Legal and Professional Fees

66 Depreciation - Office Equipment

67 Miscellaneous Expense

68

69

11
Accovmt

Number ASSETS

Cash - In Office

Account

Number

161

ASSETS (Continued)

101 Prepaid Interest

102 162 Prepaid Taxes

103 Cash - In Bank(s) 163 Prepaid Insurance

104 164

111 Notes - Due from Customers 171 Land

112 172 Building

113 Accounts - Due from Customers 173 Plant Equipment

114

115

. 116

Accounts - Due from Officers

and Employees

Bank - Financing Reserve

174

175

176

177

Truck(s) and Automobile(s)

Office Equipment

131

132

133

134

135

136

137

141

142

143

Inventory - Meats and Poultry -

For Resale

Inventory - Frozen Foods - For

Resale

Inventory - Freezers - For

Resale

Inventory - Freezing Supplies -

For Resale

Inventory - Processing Supplies

LIABILITIES

U.S. Bonds

Cash Surrender Value-Life

Insurance

201 Accounts Payable - Trade

202

203 Notes Payable - Trade

204

205 Notes Payable - Bank(s)

206

221 Accrued Interest Payable

222 Accrued Salaries and

Commissions

223 Accrued Payroll and Withholding

Taxes

224

12
Account

Number LIABILITIES (Continued)

225

226 Accrued Sales Taxes

227

241 Mortgage Payable

251 Allowance for Doubtful Accounts

252

253 Allowance for Depreciation

254

Account

Number

311

312

313

314

351

NET WORTH

Proprietors/Partners - Capital

Account

Proprietors/Partners - Drawing

Account

Profit and Loss

Expansion Chart

The sales accounts common to most

operations are Storage (401), Processing

(402), Sales-Meats (404), Sales-Frozen

Foods (405), and Sales-Other Merchandise

(406). These five accounts form the basic

classification of income or sales for the

LFP uniform system.

However, many operators will need

more detailed sales information than would

be provided by just these five accounts.

The following Expansion Chart illustrates

how basic accounts can be expanded. For

example, account 402 is Processing.

Operators desiring more detail should not

set up a single account for Processing

(402). Instead they should use accounts

such as those listed on the right-hand side

of the chart: Slaughtering, (402-1); Meat

Processing, (402-2); and Curing and

Smoking (402-3).

It is not necessary to expand all the

basic income accounts just because one is

expanded. An operator may choose to

break down processing into the seven

accounts shown for this type of income but

still have only one account. Storage (401),

for locker rentals, bulk storage, and other

storage income.

13
EXPANSION CHART

BASIC OPERATIONS

EXPANSION CHART for further

breakdown of basic operations

(401) STORAGE

401-1 Locker Rentals - Annual

401-2 Locker Rentals - Short Term

401-3 Zero Bulk Storage

401-4 All Other Storage

,(402) PROCESSING

(400) ALL SALEÍ

402-1

402-2

402-3

402-4

402-5

402-6

402-7

402-8

Slaughtering

Meat Processing (Chill, Age,

Cut, Slice, Grind, Wrap,

Freeze)

Curii^ and Smoking

Rendering

Poultry Dressing

Sales of Inedibles, Hides, etc.

Fruit and Vegetable Processing

^(403)

'(404) MEATS

404-1

404-2

404-3

404-4

404-5

404-6

, 405-1

'(405) FROZEN FOODS ^405-2

Beef

Veal

Pork

Lamb

Poultry

'405-3

'*""' "MERCHANDISE ^ll:^, Fr::zr4%upplies

(407)

14
Four Basic Accounting Forms

This section of the Guide describes

the four basic accounting forms used in the

LFP uniform accounting system.

Form ''A/' Cash Received and Sales

Record, and Form ''B/' Cash Disbursed

and Purchase Record, were designed

especially for this system. Form ''C,''

General Journal, and Form ''D,'' General

Ledger, are similar to forms used in

nearly every accounting system.

The General Ledger, Form ''D,'' differs

in that it provides columns for departmentalizing or allocating income and expenses. For example, a ledger sheet can

be set up for Processing (402). The detail

columns on this sheet can be used to show

the breakdown of processing revenue into

Slaughtering (402-1), Meat Processing

(402-2), and Curing and Smoking (402-3).

Form ''A'' - Cash Received

and Sales Record

This form, with sample entries, shows

how to record cash received and sales. All

cash receipts and all charge sales are

entered on this form. The accounting data

comes from sales tickets, processing

tickets, receipts for payments on accounts,

cash register tapes, and other records of

cash received and charges. Information

from this form is summarized and posted

to the General Ledger, Form ''D.''

The left side of the form is self-balancing, as shown on the sample. It provides all the accounting data necessary to

record cash received and sales. Alone,

however, it does not provide the detailed

sales information necessary for the management of most firms. This is the function of the right'tside of the form.

One column is provided on the left

side for recording ''All Sales Income.'^

The right side provides 14 columns for

breaking down this sales income into as

many classifications as desired. Thus the

total from all columns on the right side

must equal the total of the ''All Sales Income^' column on the left side.

In posting information from Form "A^^

to the General Ledger, the total of the ^'All

Sales Income'^ column on the left side is

not used. Instead, the information on the

right side of the form showing the detailed

breakdown is posted. More detailed discussion of this is found in the section

titled "Posting to the General Ledger. ^^

The following are brief descriptions of

typical entries on Form "A.^^ For easy

reference, each item is numbered.

Line one - Total brought forward from

previous sheet.

Items 1, 2, and 5 - Cash received as

payment on account.

Item 3 - Charge sales of meats, frozen

food, and a freezer.

Items 4 and 12 - Sales of merchandise.

In both, a note was given as security

for payment. The amount of each

note includes the cost of the merchandise purchased and the sales tax.

One also includes finance charges.

Item 6 - Cash sale of meats, frozen

foods, and locker rental.

Items 7 and 13 - Summary of cash

register receipts showing sale of

custom processing services, meats,

frozen foods, and other merchandise.

Item 8 - Owner of firm puts $500 into

the business.

Item 9 - Cash received on a bill previously written off the books as uncollectible.

Item 10 - Bank loan of $1,000. Interest

amounting to $30 was withheld by the

511802 O - 59 - 2

15
bank and $970 was deposited to the

firm's account.

Form ''B'' - Cash Disbursed and

Purchase Record

The sample Form ''B'^ illustrates the

method of handling cash disbursements

and purchases. All cash disbursed and all

purchases not paid for at the end of the

month should be entered on this form. The

accounting data comes from check stubs,

disbursement vouchers, or other records

of cash disbursed, and from invoices of

merchandise received but not yet paid

for.

The total of all debits will equal the

total of all credits on the left side of the

form, as shown in the illustration. This

provides all the accoimting inibrmation

necessary. for recording cash disbursements and purchases. It does not provide,

however, as much detail as most operators

need. The right side of Form ''B'' is

designed for this purpose.

One column is provided on the left side

for all operating expenses, and another

column for recording all merchandise

purchases. The right side of the form

provides 13 columns for breaking down

these 2 types of expenditures into as many

classifications as desired. Thus the total

of all figures shown in columns on the

right side must equal the total of the Operating Expenses and Merchandise Purchases

on the left side. In posting information

from this form, these totals are not

used. Instead, the detailed breakdown

of Operating Expenses and Merchandise

Purchases shown on the right side is

posted.

The following are brief description of

typical entries on Form ^'B.^'

Items 1 through 6 - Payroll, including

withdrawal by proprietor.

Items 7, 8, and 13 - Paid for merchandise purchased.

Items 9, 10, and 11 - Paid for various

monthly operating expenses.

Item 12 - Paid payroll withholding tax

to Collector of Internal Revenue.

Item 14 - Purchased equipment.

Item 15 - Paid $500 on bank loan.

Items 16 through 20 - Reimbursed petty

cash.

Item 21 - Entered unpaid invoice for

merchandise purchased. (End-ofmonth entry.)

Form ''C - General Journal

Form ''C is used for entries that

cannot readily be made on Forms ''A'' or

''B.'' Entries that would normally be

made on Form ''C include the monthly

charge for depreciation, bad debts, interdepartmental transfers for processing

plant-owned products, and cost of goods

sold during the month. If the entry to set

up accounts payable for merchandise purchased but not paid for during the month

is not made on Form ''B,'' it should be

recorded here (see illustrative entry 4).

This form provides two columns in

addition to the debit and credit columns.

One is headed ^'Source^' and the other

''Detail.'' The ''Source'' column may be

used to show authority for an entry or

source of information supporting an entry.

For example, if an entry affecting a

partner's capital or drawing accovmt needs

to be initialled by that partner, the

"Source" column can be used for this

purpose. Other entries are based on information contained in memoranda, tabulations, or worksheets. The "Source"

coliunn should be used to identify these.

The "Detail" colmnn is useful when

writing off bad debts or making similar

entries. For example, in writing off a

number of imcollectible accoimts, the total

is debited to (251) Allowance for Doubtful

16
Accounts and credited to (113) Accounts -

Due from Customers. The ''Detail'' column

is used to show the amounts of the individual accounts being written off which is

then posted to the accounts receivable

ledger.

detailed information. For example, one

accoimt can be used for recording all

processing labor, with the detail columns

used for a breakdown into such classifications as slaughter, meat processing, and

curing labor.

Form ^'D - General Ledger

Form ^'D'^ is a sample General Ledger

form. In addition to the columns usually

found on a general ledger sheet, a number

of others are provided for recording more

The colimin headed ^'Balance'' is used

to record the cumulative balance in the

account. The column headed ''Month'' is

used to show the total for each month and is

particularly useful when a number of entries

are made for the same account each month.

17
FORM "A"

CASH RECEIVED AND SALES RECOR
THE

MON

- F P UNIFORM SYSTEM OF ACCOUNTINtî

CASH REC

¿^ r ,

1

T

E

M

D

A

T

E

SOURCE

SALES

TICKET

NO.

ALL CASH

RECEIVED

DR- 103 c

SALES

TAX

:R-22S

ALL SALES

INCOME

AC

/O /o /O 7^ ; í^ky // 99í^2. IL

1

2

^ô o^. /^ 0&7u^y 5f/ i'¿l^

I AA

( ^^^4..-^ 2^^4^>C?5 3'î'f

7

*2130

3 /.rMr^-^^?ÎL^ 4ûô 7 7^ ^ in?

4 ^.<l<:::^^^^6a-Ky /, 40/ B^S' / /<a4

5

.Mk.*íi.<s¿.H:y 2Z%AyL/ 4^1. *

IIM

^?-

6 Cire>C'KzL jÇaM^ ^à3 7^2L 9 2^ 7¿^A

7 Ca^AyUTy^^cayUÂj ^/¿ <ió^ / 7n

8 3/ ^.^.^^^ /^.< y^^o aa

9 ¿^^!!*/¿Lct^ /i^^^^//r> V) >'lis'

10 <= ^ÙU. TlaZ^a/^á^nJ^ 4<>7 9<"^Ûûà

11 /i

12 ¿íAc£^ y^T^u^/. j/-ài "^99 /9fr 9/

13 C&^:C -^U^t^^aZÎ^. 4^9 1Il xs- x4? V7/

14

f f ^ Í

15 /iif,iiô4 h^^47 /t9^0Û Oû il

16 \ \

17 "^v.,^

^^

\, \

18 ^^.^s .

^v \

\.

19 ^

^ \\

20

^;

-^ \

21 "V

22 —

23 Pos

24

25 Number

(103) Bank-Cash Received \

Debits

26 512,422.í

0

27 (113) Accounts Receivable 12,393.

(Ill) Notes Receivable 1,973.1

28

29

\ ' ~-» » >"-"-'/ vj^iiv^xax xj^v^^i.

t

s. 30 28,291.

ff. 31

0

32

CO

33

34

35 —
Il nr _

EIVED & SALES RECORD

1

lOUNTS RECEIVABLE NOTES RECEIVABLE

1

GENERAL LEDGER

ACCT.

NO.

1

T

DEBITS CREDITS ^ DEBITS CREDITS DEBI TS CREDITS

E

M

iàVJ^ZL3c?f ?ô / é ^'-0 au X ^7â'ài'4- Íá\i¡¿o <fA'/^

j

t7. ,ff ^^ 1

0Cl^ 3^ .

^

2

^USh w 3

y ' J X ^ x<f >;ip 7^3 4

33 fo *^

/

5

6

7

,5t>co^a .v/ 8

/hrrs 7^^ 9

3ti áO /é/ 10

/û o ^D aa Jiôi/ 11

V I Û f 7f ¿J ÛO 7^3 12

13

14

líKíLZLë.i' a ra /Z¿i of 2.II ¿Li'£^ilifâ ^11¿i7^

'

15

\ /

f

V

y

r

.^

<

^^ 16

\

/ / y

y

^ ^

^

,0^ ^' 17

\ J y /^ y

^

^^'y ^

^'

1*'

IS

, 1 t / .*y

(¿'

^

y

>

€ ^4^ 19

\ / ¿ ^

^

^

^

20

^WLá^ -

i^^ 21

PsU^&^^ 22

t to General Ledger

Account

Prprfit«; Number

)4 $303.49 Accrued Sales Tax (226)

52 12,410.50 Accounts Receivable (113)

>8 289.50 Notes Receivable (111)

to 2,387.65 General Ledger (various)

12 900 00 All Sales Income Post breakdown of

[4 28 291.14\ sales to appropriate

' ' \ account — see

\ opposite page

9

\

c

__ —

1

33

V

— -

1—

35
CASH RECEIVED & SALI

1

T

CREDITS - ALLS

E STORAGE PROCESSING

M 401 402 1

/<^^.-j.Uo Z'''>f:7 ÛÛ

1

2

3

4

5

6

/;1 00

7

ii> ÛÛ

8

9

10

11

12

13 t

1 ÔÙ

14

15 /,4

0 âô i^i1 at) ÔÔ

16 ---^^

";

'^H

17 "^ ^^ ^,

^S,

18 ^'

V

>^.,

19 "--«• ^«sVkw

20

^v•>«.

V

^s. >

21

"^-îSHJi

22

23

Post to General Lec^

24

$1,050.00 Income - Storage

25

2,100.00 Income - Processing

6,125.00 Income - Sale of Meats

26 2,700.00 Income - Sale of Frozen Foods

27 925.00 Income - Sales of Other Merchandise

28 i o r\r\r\ r\r\

29 i

^L¿,,ijuv.v\j loiai income - All öaies

30 /

31 À/

32 /

33 y

f

v~

_/

35
RECORD THE L F P UNIFORM S»€TFMnF ArrnllNTINfi

MONTH OF. /^S9

VLESINCOMES _ CREDITS 1

MEATS FROZEN FOODS OTHER MDSE.

T

E

404 405 406 M

.^7V // ;,/Î?/ {^ <,;¿? o <i< /

1

2

s^ ôû 7(-) 77 é

^¿? 0 ¿><9 3

9t ù?^ Hi\ ¿/Ô 4

r

5

¥0 // 4

X. ÛÛ 6

f

aa /Í'/aa // 7Û 7

8

9

10

11 11

^

/4Í ô4 fif ya ¥ /? 12 7

ML

1

aö 3it ¿>a

T

7Í 13

14

ù( is- úa ^'i7 ÓC7 aa c

ILs âo 15

y

f *' ^

•«*•

16

/

^,,<^««• -' 17

/ *^ ^

*" -^ ^ '^' 18

/

19

^::í- 20

i 21

22

jer - Credits only

23

(401)

(402)

(404)

(405)

' (406) or (406-1) Freezers $600.00

Í406-2) Freezing Supplies 325.00

925.00

24

25

26

27

28

29

30

31

32

33

3 34

35
FORM "B"

CASH DISBURSED AND PURCHASE RECORIi
^^^^1 THE t, F p nN^e<^lRM SYSTEM OF ACCOUNTING

MONTH OF '¿í¿y'ítCC¿:cyL^ /^ó-?

CASH DISI

1

T

E

M

D

A

T

E

PAID TO, OR, PURCHASED FROM

CHECK

NO. OR

JNL.

ENTRY

CASH

PAID

CR-103

PA

WIT

c

YROLL ^

H'LDGS. °

L

R-223 ^^

NTER

RECT

ABOR.

SS'ING.

/û'h<,^LLá. ¿ ii7OO 9 '

^ Û 00 1

.3(i -^^^MAA://HuJiy - /'^Lfl^rti^/ W-? {^LSÍ ^ L3aji Ï

2 ¿liy /3-x^^,r?c/ ^'' .?v^ à

l£i±l _ 121. LílAá

3 Jc<.a.au^7/^M^¿b ^^ 3^5- i'^3ûA _ C 9Z

4 f^lQr^t^ " 34é> ío_l^ _ h.s'i.

5 ¿ ^^(^A^/M¿¿*r^l^ "' ß41 íié'21 . ¿3^X

6 c 34^ }1^30 _ z¿:2^ -

7 /¿^Cítde^^ /-¿xJu^ ÍÍ, 3/^9 nÍZ9^ _

8 äa.^,..^y^^^rzr^ ¿1, . 3^0 /:7Û^0

9 '¿¡¿^KiAJi^ ¿¿¿:^:un^^,t/<^ a Co. 3^/ c9 Ô ¿>a

10 S¿t^jfy..'Acr£^ . 3 SX. «*112^ .

11 M&./^^i^^^^ â 30:^ ^'^la ÛÛ

12 yï:^/uuZiJh<fMiin<^éi^^ ZS2f ^\llío _

13 ^.>^4-— ^. 25'S' YTU- -

14 /fV^ ZL:^^. ^. 3S<^ /

iy¿i2t

15 ^X^^^,^7?iUc^>t^.Á^ ri.fy at•>£> OO

16 /^^¿i^7i^:l«wt-4€y/è-Ad^ uiLa'Äj 35^ }itéi

17 ^^. f

IB II

19 1'

20 " ^

21 áí^AxTTt/ r¿a¿OL^ U)- íd^.

22 Ô / /

/;2-/ ItUk^. 3 LlílL.Ofioa^

23 ^^ ^.,

\

24 ^"^

:=á.

25

26 v^ J J ^

27

FOSl 10 1.

28

Acct. D

(502-a) Direct Labor - Processing $1,

29

30 Do not post. \

31

Instead post ( Operating Expenses 3,

32

detail on í Purchases - Inventory 6;

opposite page /

33

34 (various) General Ledger 2,

35 1 o

^ 86-

LO,
iUKdCU & r-UKCMASE RECORD

r. —:r=r

:

ENTER ALL

OPERATING

ACCT.

NO.

ENTER ALL

MDSE.

PURCHASES

.11 ^P=

-

GENERAL LEDGER

ACCT.

NO.

1

EXPE

-1 1—h

NSE DEBITS CREDITS

T

E

M

L ^;r 1 IÛ LL 1Í

oo i1 $ 7 4 Ôû ^ f/us\

5:^-d

S'ûj^ J 7

; à OÔ S'k.

7 ^Ôû s/ a.

û au ^/ ^

/ /^ ó ^£J ^/ R

/,-?/ /lZ 9û 7

/s-^, ;/ 7 û Ûù n

4û ûo éfT iQ

ß 2 7^ /y 1

\r\

3^ó OÓ V

1

1

I

Í

X / 7 fô ZZ3 12

/-?.r 3 f Zl 13

7 y 7i~ /7^ 1J.

s ¿3 Ú oc ±o{^ ! ;

1 tl£ ?.< 1K

3 10Ú 31. 17

110 AS' IB

545 ss- \

IQ

t S po s^ >r^

/<i / iz¿,^12 //è Su ^.ô\ '1

I ( f 320 (¿6 S7 iLZ 12iâ.il ^/éà îa •

22 a¿ sa¿

^Á ^

P

^ .—

?:= r- ¡1

.23

~" f

^>^1 ^Ä:: ::^ " ""^

9A

\^ 1 2S

5fi

îeneral Ledger

27

Bbits Credits Acct.

in —

078.00 $12,578.64 Cash Paid 103

oil an DoTTT-r»!! AX/'Ifhhnldinfi' (223) ol/.yu PQ Jrayroii wiuiiiuiwxiig yê^^v^

714.95 neneral Ledger (various) __ ^n _

143.20 ^

651.67^ >

738-62

^1 -

_^ 3? ,

^^^^^^^ ;

"^ ^ ^

""^ --

35 ^^^^"^^B
CASH DISBURSED & PURCHi

~~^

1 DEBIT OPERATING EXPENSE DEBIT

ACCT,

NO.

DE

T

E

M

NO.

C

PLANT

)PER ATING

SE

DE

LLINGLIVERY

GE

AD^

NER AL

'S'TIVE. ME

5-?4^^0 $ lSIo_\ k/Jaa 4(f

1

—^CK.

2

3 10 ûo ô't.

4 3/ 15 \ûû.

5 3( $à ûû

6 / ¿} /j ûû S/'

7

/

8

9 ^0 00 us

10 /3" 3Á170

11 /^ M^? <?£>

12

1

13

"^ 14

-~

15

^

16 <iS' Ll2¿

17 31 il da

-^

18 /^ /

7;J¿5'

^ 19 53" s-i^é"

^ 20 iO'Oû ^y

-^

21 l

-

22 ^^-i•¿lô / Ô 97 où //Ôt àû 4^1

23 \ /

f 0

24

\

's /

.^Ir ^''

^ oc KlAi-•TM

;<

^

^

1 Operating Expenses 1

^^ Summarize by acct. no. and post to General L edger

^^ Plant Operating Selling and Delivery General and Admin.

^--' Accoimts Accounts

4 •« n -4

Accounts

^^

ii 01 Oi

thrniKrh th-rmio-h fVirrma-h 1

r^

^

29

$944.20

49 69

^ $1,097.00 $1,102.00

^

^ Total operating expense

1^ $3,143.20 ^

1 ^^^^^-^

^ ^_^a III! , i III II 1 1 ^
THE L F P UNIFORM SYSTEM>F ACCOUNTING

MONTH OF /^s-f

IT MERCHANDISE PURCHASES DEBIT

ACCT.

NO.

-

——

1

T s PROCESSING

SUPPLIES

-*-- '—-«

FROZEN

FOODS OTHER

¿33

T

E

M

.^7á,a I ^^n f ^iL oo Í'oF 7 <^7

1

2

3

4

5

6

r.7 90 7

/ /'0 où 8

9

10

11

12

;í' ^/ 13

14

15

16

17

18

19

20

:í'-ro 21

'\lâô .1¿^'> ¿>a U'¿\^û ÍÚ1 a 22

"»

\ i ^•'

^^ 23 \

\

! ,,^

y

y^

24

\,i y' 25 h><\/LK 26

Merchandise Purchases 1 27

Post to Inventory Accts. in General Ledgei» 28

Acct. 29

(131) Meats Îf)4,y72.00

(132) Frozen Foods 672.00

(133) Freezers 687.67

(135) Processing Supplies 320.00

TnfQi <—,6.651.67

30

31

32

33

1

34 r"

'—r

^__ 35
FORM "C"

GENERAL JOURNAL

\
GENERAL JOURr

DAY

DESCRIPTION OF ENTRIES

DEBIT CREDIT

Ai/ ^^u^J'

■■ ^?yú^<L^^¿:'~^<^<^

-^e^¿M€.^^^£^^<uZit7-?r^ - i.^-yTCc-rtX,

^y¿¿^.¿^Z^ CL^ fl^A. /i\

ó X2y:¿ ^^y /C¿tJ2Aji^i^^^zA.>ryf, ^C^ÍÚtu.^'ic^LAyji

LJl. -:^^L^ ß/hJ/ A^AU^..rt.iL<y

^^2£^ .<^ -A»^ ¿/.<^

ÛMru/zi^cx^ ^ju\. /),

C^i-'áJ^ ¿rf /^u,¿iyí' /^^«^^«gó

^

AÄL

31 . X/^ ^Ar^£

¿^'Oc^ ^^¿2<:-y6/éz-^^-e<>yy .'O'yC'tl.c^yLA^z.-t:^^y<yK^ -^Öy .(*-<lA<Xl,e,'7n

¿hf^yr-7t4:^ x-^??ug.^z^ .Ót-y ,Ca^ ¿p/ ^"^Tu:.^ /X¿^^

;ÙJ ¿^.^x^ y<^nic

/>77<^^.^Zc/ /CC^y ¿^¿^p^t.trt^O'X^HL <^7^jéá,¿Z.

I=M- ^224r^^^7t^àA^ ' r-^^^^e^^ ^u-irzCt¿y

z:^^<::kS^-g'07¿-^<d^ .l^'*«^) Cy/iii

¿^yjyy^.<^^y^^^^y ^^^J^«ú»-«>¿

^úí^^¿4.^- J^
JAL

MONTH OF

=¿1

SOURCE DETAIL

19 sy^

GENERAL LEDGER

ACCOUNT

NUMBER

J^

DEDIT

4z^ ûA

y

CREDIT

ybAâ-^.<..r^^ -íOcJ.

-^

^; >g .<f r.-et.-^.^

a/i^-^^JZ^ tÉí.^ Û24^y.i^l//L<rt/<^.ÀA.

.2L

„„¿^7

<^.^

sS'ûj/'

I 7a

M

4J.¿i

Oú

úd

íVi 00

^M Od

^^^É^^^^^I'JUL

i^^>c^\2-

^.~e.AJ

X^ ^

>0^-<^.^^^..i>^

á^ {C^^: r^^^í^X^/y

/2í^édá.4-¿5¿i;.

^^^ /

-^

^ûX-C_

.-^^/—

_y,i^ z oa

II íHA.

¿ Z^ aà
y

FORM "D "

GENERAL LEDGER
-'/ r

NAME OF ACCOUNl

^ GENERAL LEDC

¿/

DETAIL

^¿1

-5^ ^/p;%iut^ S;^:^;

- / - _44,£4^X/_^í¿oí-j

4^i0.00 _¿_J_UQ_oO ¿Cut

4X.SOU / as caá LAr\,

y,i<OOO / / ¿

t

1

i

1 ,-,

. —1

-^ = --
R

ACCOUNT NO. X'"I it '*., y

yj .

REF. DEBITS CREDITS BALANCE

, -

DR.

: OR

CR.

MONTH

1

^ctoo /-2/ /^

1

<>'^ ^/ Û c} u¿>

^J^Oû ^'íí Ñ /fûù 0Ö /J-ÓOO aa

' Ac> ÔO .^-^/ A XóS'C ûo ¿ ûS'a <}<^

-

. . -

- -

1
Importance of Sales Tickets

Most firms use sales tickets to record

lales of processing services, locker

^entais, and sales of merchandise. Sales

ickets are original records and provide a

:ood part of the information needed for

perating the LFP system. They should

e preserved.

There are many kinds of sales tickets,

lost are prepared in duplicate or triplicate,

epending on the needs of the firm. Genrally the first copy is the accoimting or

ffice copy and the second is for the cusDmer. If there is a third, it is the work

rder or processing copy.

Sales tickets vary greatly in size, deign, and complexity. Some firms use

Lmple forms containing a minimum of

reprinting but providing space for writing

I the basic information on customer

lentity, type of transaction, and descripon of service or product sold. Large

Dmplex forms, used by many freezer

rovisioners, not only combine the fimctions of order form, sales ticket, and

processing ticket, but also have preprinted headings and stubs covering all

the products and services the firm

offers.

All sales tickets should be numbered

consecutively and all numbers accounted

for. On charge sales, the number of the

ticket may be noted on the customer's

accoimt sheet for future reference.

When a sales ticket is entered on the

Cash Received and Sales Record (Form

''A''), care should be taken to separate

such an item as sales tax from the actual

sales value. See entry on line 6 of the

illustrated Form ''A.''

Some operators require a ticket for

every sale -- cash or charge. Others use

tickets only for charge sales, and analyze

cash sales by means of a cash register.

Whichever procedure is used, care should

be taken to insure thatsales can be properly

departmentalized and that other charges,

such as sales tax and carrying charges,

are properly recorded.

Using the LFP System

This section of the Guide explains how

» use the LFP Uniform Accounting System,

structions for preparing an operating

atement are given first; then instructions

r balance sheet accounts; and finally,

structions concerning posting, and preiring a trial balance.

In discussing individual accoimts, both

e number and title as shown in the Num-

'ical Chart of Accounts are given. This

akes it easier to refer to the sample

rms and statements included in the Guide.

Operating Statement Accounts

Locker and freezer provisioners will

id that they can manage their businesses

more efficiently when operating statements

are available to them monthly. The LFP

system is designed so that a bookkeeper

can prepare an operating statement readily

and have it in the hands of management

shortly after the end of each month.

Generally, balance sheets are not prepared monthly. Most locker and freezer

provisioners find that an annual or semiannual balance sheet meets their needs.

Accounts affecting the operating statement and the accounting procedures involved

are discussed in the Guide in this order:

(1) Sales; (2) cost of sales; (3) gross margins; (4) operating expenses — plant, selling

and delivery, and general and administrative; and (5) other income — other outgo.

31
Sales

The sales figure shown in the typical

operating statement both in total and by

departments is important to accoimting

records. It is one yardstick for measuring

results of operations. Every other figure

in the statement — such as cost of sales,

gross margins, operating expense, and

operating profit -- can be imiformly related to and expressed as a percentage of

sales.

Bookkeepers should be careful not to

confuse ''billings'' with sales and thus include such items as sales taxes and carrying charges.

The niunber of sales or revenue accounts

selected will depend upon the number of

different functions the business performs

and the needs of the operator. The Expansion Chart, page 14, should be used as

a guide in setting up these accounts. Only

accounts necessary for managing the business should be set up, because each one

added tends to increase the job of taking

inventory, allocating labor, and performing similar administrative and bookkeeping

tasks.

Storage Revenue

Storage revenue comes from annual

and short-term locker rentals and from

bulk zero and other refrigerated storage.

Most firms consider revenue from

these activities as belonging to the period

the storage service was sold, even though

deferred income frequently is involved, as

in the case of annual locker rentals. The

LFP Uniform System conforms to this

generally accepted industry practice.

In constructing a monthly operating

statement, however, the unearned portion

of annual locker rental revenue is excluded

from that month's storage revenue. To

accomplish this, multiply the number of

lockers rented on an annual basis by onetwelfth of the average locker-rental rate.

To this figure add all revenue received

during the month for short-term locker

rentals, bulk storage, and other refrigerated storage. This will produce a substantially accurate total of storage revenue

for the month and will avoid including unearned locker rental revenue.

Some operators may wish to keep a

detailed record of deferred locker rentals.

A method for doing this is described later

in the Guide in the section, ''Deferred

Locker Rental Revenue."

Cost of Sales

The LFP system provides a method

for determining cost of sales so that gross

margins can be calculated for each department. This information is used in

preparing an operating statement (see

sample).

Three types of expenses are included

in cost of sales. They are:

1. Direct processing labor.

2. Processing supplies used.

3. Purchase cost of merchandise sold.

In this system, all direct labor and

all supplies used in processing are recorded as a cost to the processing department. In firms that do custom "processing

and also process plant-owned products,

part of these costs are then charged

against the products being processed for

sale. This is done through an interdepartmental transfer of costs from the

processing department to the department

credited with the sale of the product. This

transfer of costs is illustrated on the

typical operating statement. The accounting procedure involved is discussed imder

"Interdepartmental Transfers."

Freezer provisioning firms that do no

custom processing have no reason to use

32
the interdepartmental transfer procedures;

their direct cost of processing applies

only to plant-owned products. The operating statement for this type of firm would

show no processing income. The direct

cost of processing would be shown in

the Cost of Sales section for the departments credited with the sale of the

products.

Cost of sales is discussed by departments in the following sections.

Storage Department

As shown in the typical operating statement, there is no cost of sales in the

storage department. Ordinarily, this department uses little or no direct labor or

supplies. Labor used to transfer frozen

food from freezer to locker or to handle

frozen food for eventual home freezer

storage can rightfully be called part of

the processing function and charged to that

department. Labor used to assemble

frozen food orders should be charged to

selling and delivery.

About the only labor used in the storage

department is for defrosting coils, cleaning storage rooms, and repairing and

maintaining lockers and other equipment.

This is not shown as direct labor in the

storage department but as Indirect Labor

(11), a plant operating expense account.

Processing Department

The processing department is the manufacturing or production branch of the business. It serves customers and also serves

other departments. The typical operating

statement shows the two types of direct

costs in the processing department. These

are Direct Labor - Processing (502-a) and

Processing Supplies Used (502-b).

(502-a) Direct Labor - Processing - In

this LFP system labor is classified as:

direct labor - processing; indirect labor -

plant; selling and delivery labor; and general and administrative labor.

Only direct labor - processing is included as an item in cost of sales. Processing labor can be subdivided according

to function, such as slaughter, meat processing, and curing labor. Procedures for

determining direct labor costs for processing are discussed in the section ^'Labor

Allocation. ^^

(502-b) Processing Supplies Used -

Processing supplies include items needed

ior wrapping and packaging, curing and

seasoning materials, shrouds, small processing tools, and similar supplies. These

should not be confused with Plant Supplies

(13) or Office Supplies and Postage (54).

Computing the cost of processing supplies

involves proper recording of purchases

and correct inventorying. These procedures

are discussed next.

Cost of Merchandise Sold

In determining cost of merchandise

sold, two accounting procedures must be

considered. They concern method of

handling purchases, and proper inventorying methods.

The typical balance sheet shows these

five classifications under Inventories:

(131) Meats and Poultry - For Resale

(132) Frozen Foods - For Resale

(133) Freezers - For Resale

(134) Freezing Supplies - For Resale

(135) Processing Supplies

Note that inventory accounts. 131 through

134 cover merchandise purchased for resale. Inventory account 135 covers supplies to be used in the processing department

and not for resale. Meat and poultry purchased and debited to account (131) Meat

and Poultry - For Resale frequenUy take

on added value because they are processed

before being sold by the meat department.

Merchandise in accounts 132, 133, and 134

33
is usually sold ''as is'' and thus takes on

no added value.

Form ''B/' Cash Disbursed and Purchase Record, illustrates the handling of

purchases to the inventory accounts. The

column on the left side headed ''Enter All

Mdse. Purchases'' shows the total of all

such purchases and serves as a control

column. The purchases are then analyzed

on the right-hand side of the form.

All the purchases shown on Form "B"

are recorded in the inventory accoimts.

These debits to inventory increase the

dollar value of the assets. As inventories

are sold or used, the amount on hand decreases. These decreases in value are

recorded by taking out of inventory the

cost value of the merchandise sold or used

during the same period. This is done by

journal entry in the General Journal, Form

"C," at the end of the period, decreasing

(crediting) the inventory accoimts and charging (debiting) this amount to the proper cost

of sales accoimt (See accoimts in the 500

group in the Numerical Chart of Accounts).

Frequency of Inventories - It is essential that inventories be taken at the end

of each accoimting period to determine

accurately the cost of merchandise sold or

supplies used. If monthly operating statements are prepared then inventories must

be taken monthly.

The most accurate method of inventorying is an actual physical count of all merchandise and supplies on hand. Some

operators maintain running inventories by

setting up a card or sheet for each item.

Purchases are added and merchandise sold

or used is deducted, so that a running record is kept of merchandise on hand. The

running inventory record is verified from

time to time by actual physical count of

the merchandise.

Operators who cannot take a complete

physical inventory each month may group

their products into three or four categories

and inventory one category the first month.

another the following month, and so on.

In the months when no physical inventory

of a category of products is taken, gross

margin percentages, based upon previous

experience, are used in determining inventory. This method reduces the task of

taking inventories yet provides for a

physical count of all products three or

four times a year.

Calculating Cost of Merchandise Sold -

Proper procedure for calculating the cost

of merchandise sold, using the frozen

food department as an illustration, is as

follows:

Inventory of frozen foods at delivered cost

at beginning of period $2,900

Add: Purchases of frozen food - Form ''B" 672

Deduct: Inventory at end of the period

Cost of frozen food sold (see operating

statement)

3,572

1,392

$2,180

Interdepartmental Transfers

Firms which do only custom processing

deduct the cost of processing labor and

supplies from custom processing revenue.

The resulting figure is the gross margin

on custom processing.

Most firms, however, do other processing. They also process plant-owned

productsfor sale. This makes it necessary

to charge part of the direct processing

costs to the product being processed for

sale by means of an interdepartmental

transfer.

In making this charge, the direct cost

of labor and supplies for processing plantowned products is transferred from the

processing department and added to the

cost of merchandise sold in the particular

department that will sell the product. This

is done with a journal entry debiting the

cost of sales account benefiting from the

processing and crediting the processing

department. For example, if meat is

processed for sale, the entry will show a

debit to (504) Cost of Meat Sold and a

credit to (502-c) Direct Cost Charged to

Plant Owned Products.

34
The GeneralJournal, Form^'C/' illustrates an interdepartmental transfer entry.

The typical operating statement also illustrates how interdepartmental transfers

affect the cost of sales in various departments.

Determining Transfer Costs - Interdepartmental transfers should be at cost.

Several procedures that will accomplish

this are described here. The operator can

select the one that best suits his needs.

Firms in which plant-owned products

represent a rather minor portion of total

processing volume may calculate the

amount to be transferred on a per poimd

basis. A number of tests can be made to

determine the average cost per pound for

direct labor and processing supplies for

major processing activities. Each month

a careful record is kept of the pounds of

plant-owned products processed. At the

end of the month the total cost can be

calculated and the interdepartmental

transfer of cost made.

Other procedures are more desirable

if volume is large or if substantially different techniques are involved in custom

processing and in processing plant-owned

products.

If processing costs and techniques for

plant-owned products and custom processing are similar, the direct cost of labor

and supplies can be divided on the basis of

pounds handled in each category. Interdepartmental transfer of costs can then

be made.

In plants where processing plant-owned

products differs substantially in labor and

supply requirements from custom processing, (i.e., manufacturing bologna) a still

different procedure is required. In this

situation, direct labor costs for processing plant-owned products maybe calculated

either by multiplying hourly processingcrew cost by hours spent in this work, or

by keeping individual time sheets for employees. Supply cost may be determined

by maintaining a record of supplies used

on plant-owned products or, if this is not

possible, by estimating supplies used.

Labor Allocation

Labor expense frequently represents

half the operating cost of a locker or

freezer provisioning plant. Adequate records help control this cost.

The amount of detailed information

needed on labor costs varies widely among

plants, and the degree of accuracy necessary in allocating such labor by departments varies just as widely. Three procedures for allocating labor costs are

described here. The operator can select

the procedure that will give him the type

of information he requires.

1. Allocating labor cost by primary

function - Wages and salaries can be

allocated to departments according to each

employee's primary fimction. For example, if an employee is hired as a meat

cutter, his total wages would be charged

to processing even though he spent part of

his time selling. In this setup, no part of

the cost is charged to work done outside

the major fimction on the assumption the

employee would be necessary even if he

didnotperform the minor function. Therefore, since the employee must be paid anyway, any work he does outside his major

fimction is ''free.''

2. Allocating labor cost by estimating

labor usage - In this procedure, allocation

of wages and salaries to departments is

based upon an estimate of the time employees work in each. Time is allocated

on the basis of expected work and is

limited to each employee's two, or at most

three, basic activities. Distribution of

employees' salaries and wages among departments is not changed unless a major

shift in operations occurs.

The owner-manager's salary is charged

to ''management," unless he regularly

spends a substantial portion of his time in

35
Table 1. - Estimated distribution of employees' time

Employee

Direct laborprocessing

(502-a)

Selling and

delivery

(31)

Indirect

labor-plant

(11)

Office

(52)

Management

(51)

Employee A

Employee B

Employee C

Employee D

Owner-operator

75

80

15

10

20

75

Percent

10

10

25

80

100

processing or selling. In that case, a

portion of his salary should be prorated to

the ether department.

Table 1 shows how a firm with five

employees, including the owner-operator,

can allocate employees^ time by functions.

The account to which each type of work

would be charged also is shown.

These percentages are then used to

allocate the payroll to appropriate functions (table 2).

A plant operator should take the following steps in applying this method to

his own business:

Set up a form similar to table 1 to

show estimated distribution of employees^

time by functions. If the processing department (402) is divided into two or more

departments, for example, slaughtering

(402-1) and meat processing (402-2), then

the column headed Direct labor-processing

(502-a) in the time sheet should be eliminated and new columns established to show

direct labor for these fxmctions. The

columns should be headed Direct labor -

slaughtering, and Direct labor - meat

processing.

List all employees, including the owneroperator, and estimate the percentage of

time each will spend in each function or

department. Past experience, plus an

estimate of future business, should suffice

in making the distribution. If an employee

spends only a nominal amount of time in a

second or third function, make no allocation beyond the primary fxmction.

Set up a form similar to table 2 to show

the allocation of payroll. List each employee and his weekly salary. Use the

percentages showing distribution of the

employees' time in allocating their

salaries to the various departments. This

form will then contain the information

necessary to record the payroll on Form

^'B'^ - Cash Disbursed and Purchase

Record.

Table 2. - Allocation of payroll, by functions

Employee Weekly

salary

Direct laborprocessing

(502-a)

Selling and

delivery

(31)

Indirect

labor-plant

(11)

Office

(52)

Management

(51)

Employee A $90.00 $67.50 $13.50 $9.00

Employee B 80.00 64.00 8.00 8.00 - -

Employee C 75.00 - 15.00 - $60.00 -

Employee D 70.00 - 52.50 17.50 - -

Owner-operator 125.00 - - - - $125.00

440.00 131.50 89.00 34.50 60.00 125.00

36
If the owner-operator regularly devotes

a significant portion of his time to other

than management functions part of his

salary should be charged to the department

in which h€i is working but at the going

wage rate for that type of work. Take, for

example, an owner-operator who draws

$125 a week from the business and who

works half-time in the processing department. If the weekly wage for an employee

doing this type of work is $80, the owneroperator^ s salary would be allocated as

follows:

Direct labor - processing (502-a) $40

Salaries - Off. Prop./Part. (51) 85

Total Owner-operator's salary $125

3. Allocating labor cost by time records - The third and most accurate method

of allocating labor costs among departments

is to maintain a daily record of the time

each employee works in the various departments. This record is then used to

distribute or allocate salaries and wages.

A satisfactory variation of this method is

to maintain such a daily record for one

week out of each month and use the information as a basis for distributing wages

and salaries durii^ the entire month. A

form such as illustrated in table 2 can be

used for allocating each employee's salary.

This in turn provides the information for

recording the payroll on Form ^'B.'^

A weekly payroll record, similar to

the accompanying one, can be used for

recording time worked by employees by

functions. Thisform can be mimeographed

and kept in a loose leaf notebook. A description of the activities falling into each

function can be mimeographed on the back

of the form.

Gross Margins

Gross margins are calculated by subtracting direct cost of sales from net

sales. These gross margin figures are

important to management and should be

provided quickly, both in total amount and

as a percentage of sales, at the end of each

month. Every month this information is

delayed lessens its value.

The LFP system provides for determining gross margins by departments.

These data are important because they

show management how each department

is contributing to the cost of operating the

plant and the amount remaining after paying for direct labor and materials used.

They also serve as a measure of operating

efficiency. Changes in the gross margin

percentages by department are a signal to

management to investigate.

Gross margin data can be most useful

when accounting is done uniformly over a

period of time. This permits comparisons.

Once basic departments have been established, expense accoimts selected, and the

method of allocating payroll determined,

no changes should be made unless there is

a basic change in operations, or an adjustment is necessary to improve the usefulness of the information.

Operating Expense

Operating expenses are numbered from

11 through 99 and grouped according to 3

distinct functions. They are classified as:

1. Plant expense

2. Selling and delivery expense

3. General and administrative expense

Many expenses such as those for labor,

utilities, advertising, laundry, and rent are

regularly paid at the end of each week or

month. These present no problem in preparing monthly operating statements as

the necessary information is readily available. (The one exception is labor when

paid on a weekly basis. In this case, some

operators may find it desirable to accrue

37
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38
labor expense for a part of the week in order

to show exact labor cost for the month.)

A great many other expenses are paid

on a quarterly, semiannual, or annual

basis. These include insurance, real

estate taxes, payroll taxes, and accounting

fees. In constructing monthly operating

statements, itis desirable to show a charge

for these expenses each month rather than

show them in full in the month of payment.

For this type of expense, monthly charge

(one-twelfth of the estimated annual expense for each item) should be calculated

and used in preparing the monthly report.

These monthly estimates need not be

entered on the books, they are used only

in preparing monthly statements.

Two other expenses, not included among

those just mentioned, are entered on the

books each month so that a monthly charge

will* appear on the operating statement.

These two expenses are depreciation and

bad debt expense. The method of computing

them is explained elsewhere in this Guide.

The three types of operating expense

accounts will now be discussed by number

and title. If the title of the account clearly

indicates its nature, no further comments

will be made.

Plant Expense

Plant expenses are those incurred in

operating the physical plant of the business.

They include repairs and maintenance of

buildings and equipment, depreciation,

rent, utilities, real estate taxes, and

similar expenses. The numerical chart of

accounts specifically shows which accounts

are classed as plant expense.

(11) Indirect Labor - Charge to this

account all labor used for maintenance of

buildings and equipment, janitorial labor,

salaries of watchmen, and other plant labor

not directly related to processing. Many

firms have very little indirect labor and

it generally is performed by processing

employees. Under such circumstances.

some part of the processing employees'

wages might be charged here. The procedure described earlier for allocating

payroll can be used to determine this cost.

(13) Plant Supplies - Charge to this

account insecticides, cleaning materials,

paper towels, paper bags, and similar

supplies used in the business. Do not

charge any processing supplies, or those*

used in the repair and maintenance of

buildings and equipment.

(14) Utilities - Power, Light, Heat,

and Water - This title is self-explanatory.

(15) Repairs and Maintenance - All

expense incurred in the repair and maintenance of buildings and equipment, including cost of supplies and materials purchased for this purpose, is recorded here.

(16) Rent - This title is self-explanatory.

(18) Laundry

explanatory.

This title is self-

(19) Depreciation - Building and Equipment - Records of fixed assets (such as

buildings, processing and office equipment,

and trucks) should be maintained for proper

accounting and for tax purposes. Most

stationery stores carry printed forms for

this purpose which show date of purchase,

purchase price, rate of depreciation, and

amount of depreciation charged. From

such records the total annual depreciation

can be determined. One-twelfth of this

amount is charged (debited) each month to

this account (19) and credited to (253)

Allowance for Depreciation, using the General Journal for the entry.

(21) Taxes - Real Estate, etc. - All

taxes resulting from ownership of land,

buildings, and equipment.

Selling and Delivery Expense

Most plants consider costs incurred in

delivering products as part of selling

39
expense. Therefore, in this Guide, delivery

and selling expenses are combined. However, firms with substantial delivery

expenses may prefer to record them

separately. There are sufficientimassigned

numbers in the numerical chart of accoimts

to take care of this contingency.

, (31) Wages, Salaries, Commissions -

All wages, salaries, and commissions

connected with selling and delivery are

recorded here. The procedure described

earlier for allocating payroll can be used

to determine the amounts chargeable to

this account.

When a commission or bonus has been

earned by an employee but not actually

paid to him during an accoimting period,

it should be debited to this accoimt and

credited to Accrued Salaries and Commissions (222). When paid in the next

accounting period, the amount is debited to

account 222.

(32) Advertising and Promotion - Include all costs of newspaper, magazine,

and radio advertising. Also include stationery and postage used in direct mail

promotion. These costs should be kept separate from Office Supplies and Postage (54).

(35) Delivery Truck Expense - Expenses incurred in operating trucks are

charged to this accoimt. Costs of gas and

oil, tires, repairs, and licenses are included.

(36) Depreciation - Truck and Automobile - The cost of trucks and automobiles

is usually recorded with other fixed assets.

From these records, depreciation expense

can be calculated and debited to this account. The credit entry would be to (253)

Allowance for Depreciation and the entry

would be handled through the General

Journal.

General and Administrative Expense

General and administrative expense

covers accoimts used for recording costs

of managing the business. It includes

salaries of officers or proprietors, office

salaries and supplies, and insurance.

(51) Salaries - Officers/ Proprietors/

Partners - If officers are also employees

of the firm, it is no problem to charge

their salaries to the proper account. In

some proprietorships and partnerships,

however, the owner-operators make no

monthly charge against the business equivalent to this salary expense. In such cases,

operating expenses are not fully stated

and operating reports may not be truly

comparable with those of other firms. A

fair and equitable charge should be made

for salaries, debiting this account (51) and

crediting Proprietors/Partners - Drawing

Account (313).

The owner may actually draw more or

less than the amoxmt recorded as his

salary. However, these monthly credits

to his drawing account, together with his

actual withdrawals which are debited to

his drawing account, all clear at the end

of the period into the Capital Accoimt The

result is that the operating statement

shows a realistic charge for officers'^

salaries regardless of the amount actually

drawn by the owners.

It is sometimes difficult to decide what

amount to charge each month for the

owner^s or partner's salary. One solution

to this problem is to use the amoimt that

would be paid an outsider to perform the

same administrative tasks that the owner

or partner performs.

(52) Salaries - Office - Charge here

the salaries of all secretaries, bookkeepers,

accoimtants, and others engaged in office

work.

(54) Office Supplies and Postage - This

account includes the cost of stationery,

invoices, sales tickets, and accoimting

supplies. It also includes postage, except

that used in direct mail promotion which

is charged to Advertising and Promotion

(32).

40
(55) Insurance - Record here all premiums for fire and theft insurance covering buildings, equipment, and merchandise.

Business interruption insurance, personal

liability insurance, and surety bonds are

also included in this accoimt.

Do not include the expense of life insurance premiums. These should be

charged to Life Insurance Expense (804).

In this connection, keep in mind that the

cash surrender value of life insurance

should not be shown as an asset unless the

beneficiary is the business itself.

Businesses carrying hospitalization insurance on employees or providing similar

insurance benefits should set up a separate

account for this expense. One of the unassigned numbers between 50 and 99 in the

chart of accounts should be used.

(56) Dues and Subscriptions - This account is for dues to business and trade

organizations and subscriptions to trade

magazines.

(58) Telephone and Telegraph - Charge

to this account all telephone and telegraph

bills. If considerable extra expense is

incurred in telephone selling, the added

cost might betterbe charged to Advertising

and Promotion (32).

(59) Bad Debt Expense - Some operators do not consider an account bad until

it has been declared uncollectible. Under

these circumstances, the usual procedure

is to charge it off directly to this account.

A better procedure is to anticipate

such losses by setting up an Allowance for

Doubtful Accounts (251). This is accomplished by first estimating bad debt expense

and then determining the percentage this

expense is of sales. Each month a charge

for doubtful accounts is made, using

monthly sales figures and the estimated

bad debt percentage. Bad Debt Expense

(59) is debited for this amount in the

General Journal and the Allowance for

Doubtful Accounts (251) is credited.

When an account is judged uncollectible,

it is charged off to Allowance for Doubtful

Accounts (251). This procedure has the

effect of charging a bad debt to the month

in which the sale was made, rather than a

future time when the debt would bear no

relationship to sales.

If the balance in the Allowance for

Doubtful Accounts increases steadily, the

percentage figure being used to calculate

bad debts should be decreased. On the

other hand, if the balance decreases too

rapidly, the percentage figure should be

increased.

(61) Donations

explanatory.

This title is self-

(62) Travel and Entertainment - This

account should be used to record travel

and entertainment costs incurred in attending meetings in connection with the

business, in entertaining suppliers or

customers, and in like activities. Company

entertainment for employees and similar

expenses also should be charged to this

account.

(63) Payroll Taxes - This title is selfexplanatory.

(64) Other Taxes and Licenses - Include all local or State taxes and licenses

required to conduct the business. Do not

charge to this account income, real estate,

or payroll taxes. ,

(65) Legal and Professional Fees -

Accountant and legal fees paid for collecting accoimts are recorded here.

(66) Depreciation - Office Equipment -

See discussion under Depreciation - Building and Equipment (19) for proper procedure in accounting for depreciation of

office equipment.

(67) Miscellaneous Expense - Only

incidental or miscellaneous expenses that

cannot be identified with any other account

should be charged here.

41
Other Income—Other Outgo

Certain income and outgo do not result directly from operations of the business. It is accepted accounting practice

to show these items at the bottom of the

operating statement after the operating

profit is calculated. This gives a clearer

picture of results.

Other Income

The 700 group of accounts is used to

record non-operating income. This includes such items as earned interest and

discoimts. Should all or part of a debt

previously listed as uncollectible be paid,

the net amount recovered is recorded as

Other Income.

(701) Discounts Earned - Discounts

taken for paying a bill within a given period

are credited to this accoimt. This is done

by crediting account 701 in the General

Ledger column of Form ^'B^' when the

entry is made showing payment of the bill.

(703) Interest and Earnings - Financing - Credit to this account any interest

earned on notes receivable from customers,

as well as interest and carrying charges

earned from installment accounts. The

method of recording carrying charges is

illustrated on Form ^'A.^'

(704) Bad Debts Recovered - Whenever

part or all of an account that has been

written off the Allowance for Doubtful

Accounts is subsequently recovered, the

net amoimt recovered (after deducting

collection expense) should be credited to

this account. There is an example on

Form ''A,'' item 9.

(706) Cash - Over and Short - As

mentioned previously, cash received (currency and checks) should be deposited in

the bank each day. If the cash either

exceeds or is short of the amount shown

on Form ^'A,'^ the difference should be

recorded here.

If cash exceeds the amoimt shown on

Form ''A,'' the difference is credited to

this account using the General Ledger

columns on Form ''A.'' If cash is short,

the difference should be made up from the

petty cash and added to the deposit. When

petty cash is reimbursed, this shortage

would be charged to the Cash - Over and

Short account.

Other Outgo

Other Outgo accounts in the General

Ledger are numbered from 800 to 899.

Among the accounts so classified are:

Discounts allowed, interest, and life insurance expense.

(801) Discounts (Cash) Allowed - Here

would go any deductions allowed customers

for paying their accounts within a certain

period. This type deduction should not be

confused with reductions in selling price

for volume purchases.

(802) Interest Expense - All interest

expenses incurred by the firm in borrowing money, as well as interest paid on

installment purchases of equipment, is

recorded here.

(804) Life Insurance Expense - When

a life insurance premium is paid from

funds of the business and the business is

the beneficiary, that portion of the premium that is expense should be charged

to this accoimt. A portion of the premium

is capitalized by increasing the cash

surrender value of this asset. (See (142)

Cash Surrender Value - Life Insurance).

If premiums are paid with funds of the

business but the business is not the beneficiary, the proper procedure is to charge

(debit) the premiums to the proprietor's

or partner's drawing or capital account.

Generally, incorporated businesses

can be designated as beneficiaries of insurance policies. Frequently partnerships

are shown as beneficiaries and, imder some

circumstances, individual partners are the

42
beneficiaries. In a single proprietorship,

the individual's estate rather than the

business is generally the beneficiary.

Balance Sheet Accounts

This section of the LFP Guide contains

specific instructions for preparing a balance sheet. Assets are discussed first;

then liabilities; and, last, net worth.

A typical balance sheet is shown on

pages 6 and 7.

Current Assets

Current assets are made up of cash,

receivables, and inventories. Accounting

procedures will be explained for each of

these classifications, with the various

accounts identified by nimiber and title.

Cash

Cash is the first asset recorded on a

balance sheet. It includes cash in the bank

as well as cash on hand.

(101) Cash - In Office - Cash is kept

in the office to pay certain minor expenses

connected with operating the business.

This money, known as the petty cash fund,

is kept separate from the regular cash

receipts recorded on Form ^^A^' and deposited in the bank.

As cash is taken from the petty cash

fund to pay small bills, it is replaced with

a receipted bill or petty cash slip showing

the amount paid, to whom, and for what.

Each of these slips and receipted bills

should also show the account number to

which the expense will be charged. Periodically, the petty cash fund is replenished

and an entry made to record the expenditures.

This example illustrates the usual

procedure for handling petty cash. At the

beginning of the month, the petty cash fund

is $100. At the end of the month, the

petty cash fund contains paid bills and

other evidence of expenditures amounting

to $88.40 and $11.60 in cash. These bills

and other expense records can be filed in

an envelope, with a summary on the outside of the envelope showing the amounts

and account numbers to be charged. A

check for $88.40 is then drawn to the

order of Petty Cash, restoring the fund to

its original $100.

The method of recording petty cash

expenditures is illustrated on Form ^^B/^

items 16-20.

(103) Cash - In Bank(s) - Total receipts, as shown on Form '^A,^^ should be

deposited in the bank daily. The montiily

statement from the bank should be reconciled with the firmes books. Any charges

for bank services or any credits require

a General Journal entry.

Receivables

The typical balance sheet shows receivables in four groups:

(111) Notes - Due from Customers

(113) Accounts - Due from Customers

(114) Accounts - Due from Officers

and Employees

(115) Bank - Financing Reserve

Other groups can be set up if necessary, using unassigned numbers from the

chart of accounts.

(Ill) Notes - Due from Customers -

This includes promissory notes accepted

in settlement of open accounts and installment notes received from food plan or

freezer provisioning activities. If there

are sizable numbers of these notes, it

would be well to open a separate ledger

with an accountfor each one. On Form ''A,

control columns have been set up for Notes

511802 O - 59 •

43
Receivable as well as Accounts Receivable.

(113) Accounts - Due from Customers -

These are charges made on open account.

All charges to accoimts receivable and

all payments on account are entered in

special columns provided on Form ''A/'

Totals of these columns provide the control

figures for the General Ledger accoimt.

An individual card or ledger sheet is used

for each customer, showing all charges

and all credits. It is important that the

sum of the balances in these individual

accounts agree with the total control figure

in the Gteneral Ledger.

(114) Accounts - Due from Officers

and Employees - Any charge, loan, or

advance to officers (if a corporation), or

to employees should be entered here. It

is important to keep these accounts

separate from Accoimts - Due from

Customers.

(115) Bank - Financing Reserve -

Many banks advance fimds with either

notes or accoimts receivable assigned as

security. It is a common practice for a

bank to advance 90 to 95 percent of the

face value of the notes or accounts so

assigned, withholding 5 or 10 percent until

the loan is liquidated. The firm borrowing the money records the amount withheld

under (115) Bank - Financing Reserve.

To illustrate, assume that a total of

$4,000 in notes receivable has been assigned to the bank as security for a loan.

The bank issues a credit memo for $3,600

which indicates this amoimt has been

credited to the firms account. Usir^ this

memo, the borrower's entry on Form '^A'^

Cash Received and Sales Record, would

be:

Debit - (103) Cash - in Bank $3,600

Debit - (115) Bank - Financing Reserve 400

(Using General Ledger

column)

Credit - (205) Notes Payable - Bank $4,000

(Using General Ledger

column)

Procedures from here on vary in detail depending upon terms of the loan, such

as whether the bank or the borrower collects the notes receivable, whether collections by the bank are with or without

recourse, and so on.

Assume, however, that the firm borrowing the money makes collection of two

of the assigned notes for a total of $1,000.

Receipt of this amount would be recorded

on Form ''A'' as follows:

Debit - (103) Cash - in Bank $1,000

Credit - (111) Notes - Due from Customers 1,000

Again depending on arrangements with

the bank, the procedure might be to draw

a check payable to the bank for the full

amount of the collection ($1,000). This

would be entered on Form ''B,'' Cash Disbursed and Purchase Record, as follows:

Debit - (205) Notes Payable - Bank

Credit - (103) Cash in Bank

$1,000

1,000

This reduces the bank loan from $4,000

to $3,000.

If the procedure of remitting to the

bank in full is followed, the bank would

issue a credit memo for $100, the 10

percent of the $1,000 withheld at the time

of the loan. Using this memo, the entry

on Form ^^A'^ would be:

Debit - (103) Cash - in Bank $100

Credit - (115) Bank - Financing Reserve 100

The General Ledger colunm would be

used for the credit entry.

If a check is issued to the bank for only

$900, the entry on Form ''B'' would be:

Credit - (103) Cash - in Bank $900

Credit - (115) Bank - Financing Reserve 100

Debit - (205) Notes Payable - Bank $1,000

The result of these procedures is that

notes receivable and notes payable have

44
each been reduced by $1,000 and the $100

withheld by the bank has been returned,

either by crediting to the borrowii^ firm's

bank account, as in the first illustration,

or applying it to the loan as shown in the

second illustration.

A careful record should be maintained

of each note or accoimt assigned to the

bank. The record can be on a card or a

debit-credit ledger sheet. The record

should show amount, date assigned, date

due, payment on account, renewals, and

related information.

Whenever a financial statement is

prepared, a footnote should indicate the

amount of notes or accoimts receivable

that have been assigned as security for

loans shown on the statement.

(251) Allowance for Doubtful Accounts -

See Bad Debt Expense (59) for a discussion

of this account.

Inventories

Inventory accounts number 131-135 are

discussed together, since the same comments apply to all of them.

(131) Inventory - Meats and Poultry

For Resale

(132) Inventory - Frozen Food - For

Resale

(133) Inventory - Freezers - For Resale

(134) Inventory - Freezing Supplies -

For Resale

(135) Inventory - Processing Supplies

Cost of merchandise going into inventory

should be recorded at the delivered cost.

That is, it should include both the purchase

price and the cost involved in getting the

merchandise delivered to the plant. In

calculating cost of sales, this same delivered cost should be used.

Inventorying methods vary and no one

method can be recommended for all firms.

Probably most lockers and freezer provisioners use the First In - First Out

method (FIFO). This means that merchandise and supplies are inventoried at the

price most recently paid for the product.

If processing plant-owned products

constitutes an important part of the business, a rather large volume of partially

processed products is often carried over

from one period to another. It is sometimes necessary to inventory these products at partially processed value rather

than at raw material cost or at finished

value. When such a procedure is determined tobe necessary, the work-in-process

valuation should be raw material costs

plus direct processing labor cost and

processing supplies used.

Other information on inventories and

inventorying methods was presented earlier

in the Guide in the section, ''Costof Sales.''

Investments

Frequently a firm owns certain assets

which are not necessary to or used in the

operation of the business. These may include Grovernment bonds, real estate not

used in the business, and similar assets.

Cash surrender value of life insurance

also comes imder this category, if the business is the beneficiary named in the policy.

(141) U. S. Bonds - Treasury bonds

are used to illustrate the accounting procedure for handling this type of investment.

When bonds are purchased for the business, the investment appears as an asset

in this account and the income derived

from it goes to Other Income. An account

number should be selected to record this

income. This could be (702) Income from

Investments.

When such an investment is made and

it is intended that the sum invested be

45
taken out of the business, the procedure

is different. The investment is not shown

as an asset but rather is charged to the

proprietor's or partner's drawing or

capital account, thus recording the removal

of funds from the business.

(142) Cash Surrender Value - Life

Insurance - This asset is shown on the

books of the business only if the business

is the beneficiary. Premium expense

should be charged to (804) Life Insurance

Expense, as discussed under that accoimt.

The insurance agency can be helpful in

determining cash surrender value.

Prepaid Accounts

Frequently certain expenses are paid

in one accounting period but the benefits

derived from the expenditure are realized

over a considerable number of accounting

periods. To report the entire expense in

a single monthly operating statement

would distort that statement and reduce its

value. For this reason, an accounting

procedure should be used whereby the

expense can be prorated on a monthly

basis.

Most locker and freezer provisioners

will probably need to set up three prepaid

accounts:

(161) Prepaid Interest

(162) Prepaid Taxes

(163) Prepaid Insurance

The following example, using account

(163) Prepaid Insurance, illustrates the

accounting procedure used for all prepaid

accounts.

A yearly insurance premium is $600.

If this were charged directly to (55) Insurance in the month in which the premium

was paid, that monthly statement would be

distorted and would not be comparable

with others.

To prevent this, and at the ame time

to indicate that this e:q)ense has been paid

in advance, charge the full amount of this

bill to Prepaid Insurance (163). Then,

before the close of the period, make a

General Journal entry debiting (55) Insurance with one-twelfth of the $600 expense and crediting (163) Prepaid Insurance

with the same amount. This is continued

each month until the entire amoimt has

been wiped out. This procedure is repeated when premiums are paid again.

Most stationery stores carry standard

forms that are useful in recording important insurance information, such as

amoimt of insurance, dates premiums are

due, coverage, and similar data.

Fixed Property and Equipment

Fixed property and equipment are part

of the total assets of a firm. The tjTpical

balance sheet illustrates how these assets

should be presented, along with allowances

for depreciation.

Five accounts will be sufficient to record the fixed property and equipment of

most firms. They are:

(171) Land

(172) Building

(173) Plant Equipment

(174) Truck(s) and Automobile(s)

(175) Office Equipment

When fixed property or equipment is

disposed of, the gain or loss -- after deducting the allowance for depreciation

from the purchase price -- is handled

through the Other Income or Other Outgo

accounts. It would be appropriate to

establish an account to record this transaction, such as (705) Gain or Loss on Sale

of Fixed Assets.

46
Most firms have small investment in

store equipment and will record it with

accoimt (173) Plant Equipment. However,

if considerable store equipment is owned

and used in the business, a special account

may be set up to record this asset. Any

imused number in the 170 account group

(for example, 176) should be selected.

Land and buildings not used in the

business but held for investment purposes

should be recorded in the 140 account

group and classified as investments.

Liabilities

Liabilities are debit items and are the

obligations of the business. Various liability

accounts are discussed in this section of

the Guide in the order in which they appear

on the typical balance sheet.

Payables

Payables are described in this Guide in

order of time of settlement. For example,

(201) Accounts Payable - Trade is for

accounts that are generally due and payable

on request or at the end of the month. On

the other hand, items under (203) Notes

Payable - Trade are generally longer term

liabilities.

(201) Accounts Payable - Trade - Invoices and bills not paid during the period

covered by the operating statement should

be entered on the books before they are

closed or before the operating statement and

balance sheet are prepared. If this is not

done, the books will not present a true picture of the firm's inventories or liabilities.

The General Journal, Form''C,''illustrates how these payables are entered on

the books. When there are a number of

such accounts each month, they can be

handled in the same manner as accounts

receivable; that is, a separate ledger sheet

for each.

An alternative method of handling these

accounts payable is to enter them on the

Cash Disbursed and Purchase Record,

Form ''B.'' Entry number 21 on the

typical form illustrates this procedure.

Instead of making an entry in the General

Journal, the net amount of the accounts

payable is debited in the proper Merchandise Purchases column and credited to

''Accounts Payable - Trade'' in the General

Ledger column. Note that the notation

''Jnl Ety" (Journal Entry) is used in the

Check Number column to indicate that no

check was issued.

This procedure can also be used for

recording other impaid bills. Such bills

are debited to the proper expense account

and credited in the General Ledger colimin

to Accounts Payable - Trade. When the

unpaid bills are of a recurring nature,

such as the power bill, this procedure

need not be followed if one such bill is

paid and posted to the books each month.

(203) Notes Payable - Trade - Notes

payable are occasionally given to suppliers

in settlement of an open account. When

these liabilities have been recorded in

account (201) Accounts Payable - Trade,

and later a note is given, the procedure

then is to debit (201) Accounts Payable -

Trade and credit (203) Notes Payable -

Trade. The General Journal, Form ''C,"

is used for making the entry.

(205) Notes Payable - Bank(s) - The

procedure here is the same as for (203)

Notes Payable - Trade. These obligations

may be in the form of a single or a series

of notes, or notes secured by assigning

notes or accounts receivable. The method

of liquidating such notes varies considerably, depending upon arrangements with

the lending bank. All payments on notes

are recorded on Form ''B" as illustrated.

The total of the individual notes payable

should be checked and reconciled with the

control figures in the General Ledger.

An up-to-date schedule of all notes

payable should be maintained. This

47
schedule shoxdd show the amount, date of

payment, to whom and where payable and

related information.

Additional information on this account

is given in the discussion of (115) Bank -

Financing Reserve.

Accrued Expenses

Accrued expenses are obligations that

have been incurred in the course of conducting the business but which will not be

paid imtil a later date.

(221) Accrued Interest Payable - Interest paid in advance is shown in account

(161) Prepaid Interest. If, however, interest is not to be paid until some future

date, that portion of the interest expense

incurred during the accounting period

should be recorded so that the obligation

will show in the books. The procedure is

to enter in the General Journal a debit to

(802) Interest Expense and a credit to (221)

Accrued Interest Payable.

(222) Accrued Salaries and Commissions - The need to accrue salaries and

commissions arises when expenses have

been incurred but not paid by the end of

an accounting period. It is important to

show these expenses in the operating statement and these liabilities in the balance

sheet.

The procedure for showing this is by

Journal entry, debiting the proper wage or

commission accoimt and crediting (222)

Accrued Salaries and Commissions. When

the obligation is paid at a later date

accoimt (222) is debited and the liability

liquidated.

(223) Accrued Payroll and Withholding

Taxes

(226) Accrued Sales Taxes

These two accounts are provided to

record monies that have either been withheld from payrolls or collected from customers and are to be paid to some agency

such as the Internal Revenue Service.

Form ''B'' illustrates how to record

amounts withheld. Form ''A'' shows how

sales taxes collected from customers are

recorded.

(241) Mortgage Payable - This üüe is

self-explanatory.

Reserves

A reserve is an account with a credit

balance, set up because the expenses of

operation have decreased an asset or

created a liability. Most firms will need

these two accounts:

(251) Allowance for Doubtful Accounts

(253) Allowance for Depreciation

The procedure for setting up these

accounts is covered elsewhere in the

Guide. See the discussion of account (59)

Bad Debt Expense for information on

(251) Allowance for Doubtful Accounts.

Discussions of accounts (19) DepreciationBuilding and Equipment, (36) Depreciation -

Truck and Automobile, and (66) Depreciation - Office Equipment also refer to

(253) Allowance for Depreciation.

These accounts are shown on the left

side of the balance sheet as deductions

from an asset account. Allowance for

Doubtful Accounts (251) is shown as a

deduct from total receivables. Allowance

for Depreciation (253) is shown as a deduct

from the various fixed asset accoimts.

Deferred Locker Rental

Revenue

The trend in the industry is to consider

storage revenue as earned in the period in

which the storage service was sold. Thus,

the balance sheet in this Guide shows no

deferred locker-rental revenue.

48
Many operators who receive a substantial portion of their revenue from

annual locker rentals may wish, however,

to show this deferred income on the balance sheet When this deferred income is

shown only on the end-of-the year balance

sheet the following procedure is suggested.

Set up a General Ledger accoimt (261)

Deferred Locker Rental Revenue. At the

end of the year, determine the amount of

unearned locker rental revenue. Transfer

this amoimt by General Journal entry out

of the storage revenue accoimt by debiting

(401) Storage, and crediting (261) Deferred

Locker Rental Revenue. At the beginning

of the next accounting period, reverse this

entry so that the deferred revenue will be

shown as current revenue.

A number of methods have been developed for calculating the amount of deferred locker rental revenue. Table 3 illustrates one method. The percent deferred

is always 4.17 the first month of the fiscal

year; 12.50, the second month; and so on.

Some operators constructing end-ofthe-month balance sheets may wish to

show this deferred locker rental revenue

each month. In that event, a different

accoimting procedure is necessary. One

from short-term locker rentals, bulk

storage and other refrigerated storage to

(401) Storage. Revenue from annual locker

rentals, however, is credited to (261)

Deferred Locker Rental Revenue. At the

end of each month the earned portion of

this revenue is transferred from this

accoimt to (401) Storage, using the techniques of determining earned locker rentals

described in the section, ''Storage Revenue.^^

Net Worth

Many firms in the locker and freezer

provisioning industry are organized as

single proprietorships or as partnerships.

The net worth accounts necessary for this

type of ownership are:

(311) Proprietors/Partners Capital

Account(s)

(313) Proprietors/Partners - Drawing

Account(s)

(351) Profit and Loss

If the firm is organized as a corporation, net worth accounts would be designated:

(311) Capital Stock - Authorized and

practical method is to credit all revenue Issued

Table 3. - Method of calcula ting deferred locker rental revenue

Annual Deduct Net

Month rentals rentals annual Percent Amount

billed cancelled rentals deferred deferred

January $800 $800 4.17 $33.36

February 600 - 600 12.50 75.00

March 400 - 400 20.83 83.32

April 400 - 400 29.17 116.68

May 500 $50 450 37.50 168.75

June 400 - 400 45.83 /183.32

July 300 50 250 54.17 135.42

August 200 - 200 62.50 125.00

September 400 - 400 70.83 283.32

October 500 - 500 79.16 395.80

November 800 - 800 87.48 699.84

December 800

100

800 95.83 766.64

Total 6,100 6,000 3,066.45

49
(313) Surplus

(351) Profit and Loss

If the firm is organized as an incorporated cooperative, the accounts would be

designated as follows:

(311) Preferred Stock - Authorized

and Issued

(312) Common Stock (Voting or Membership Stock)

(313) Undistributed Savings

(351) Savings and Loss

Posting to the General Ledger

All posting to the General Ledger is

from Form ^'A'^ - Cash Received and

Sales Record; Form ''B'^-Cash Disbursed

and Purchase Record; and Form ^'C^' -

General Journal.

Form ''A'^ shows end-of-the-month

totals. The total of some columns, such

as accoimts 103, 111, 113, 226, are posted

directly to the General Ledger. However,

when the term ^'various'' is used as shown

in the instructions at the bottom of the

form, this means that posting must be by

individual items. For example, each item

in the General Ledger columns on the lefthand side must be posted separately, or

else like items in these columns must be

combined in a summary for posting.

The information in the All Sales Income

column ($12,900) on the left-hand side of

Form ^^A^' is not posted. This information

is broken down on the right-hand side and

is posted to the appropriate accounts as

shown on the illustrated form.

The same general procedure applies

in posting from Form ''B^' as in posting

from Form '^A.'' Items in the General

Ledger columns on the left hand side are

posted individually. The information in

the Operating Expense column and the

Merchandise Purchases column is not

posted, as it is further broken down on the

right-hand side. The remaining columns

on the left-hand side are posted directly

to the General Ledger.

As an aid in posting, the right-hand side

provides columns for further classifying

operating expenses and merchandise purchased. Operating expenses are classified

into three types - plant operating expense,

selling and delivery expense, and general

and administrative expense. The various

items listed in these columns are posted by

the accoimt number identifying the expense.

The totals of these columns are not posted.

Also on the right-hand side are colmnns

for classifying merchandise purchases.

The totals of these coliunns may be posted

directly to the General Ledger, with the

possible exception of the column headed

Other. Depending on the use made of the

columns, it may be necessary to post individual items from this colxunn.

Most entries on Form ''C'' are posted

as individual items to the various General

Ledger accounts.

Trial Balance

The four-page trial balance form which

follows will assistin preparing the monthly

operating statement and balance sheet.

Each accoxmt in the General Ledger is

listed by name and nvunber, with blank

spaces for additional accoimts that may be

required. The accounts are listed to conform to the chart of accounts.

When the debit or credit balance of

each accoimt from the General Ledger is

entered on this form and the form ^'balances, ^^ the operating statement and the

balance sheet can be prepared.

Operators desiring to use a trial balance form may buy suitable blank columnar

paper or have a supply printed.

50
TRIAL BALANCE FORM - General Ledger

Used to prepare Balance Sheet and Operating Statement

Debit Balances - Assets

Acct.

No. Amoimt Credit Balances - Liabilities

Acct

No.

•

Amount

CASH PAYABLES

Cash - in office 101 Accounts - trade 201

102 202

In bank(s) 103 Notes - trade 203

RECEIVABLES 204

Notes - due from customers 111 Notes - bank(s) 205

112 206

Accovmts - due from ACCRUED

customers 113 Interest 221

Accounts - officers/ Salaries and commissions 222

employees 114 Payroll-withholdings 223

Bank - financing reserve 115 224

INVENTORIES 225

Meats and poviltry - Sales taxes payable 226

for resale 131

Frozen foods - for resale 132 Mortgage payable 241

Freezers - for resale 133 Allowance for doubtful

Freezing supplies - accoimts 251

for resale 134 252

Processing supplies 135 Allowance for depreciation 253

136

INVESTMENTS NET WORTH

U. S. Bonds 141 Proprietors capital accoimt 311

Cash surrender value - 312

life insurance 142 Proprietors draw'g account 313

143 314

PREPAID 315

Interest 161

Taxes 162

Insurance 163 Profit and loss account 351

164

FIXED PROPERTY AND

EQXnPMENT

Land 171

Bxiilding 172

Plant equipment 173

Truck(s) and automobile(s) 174

Office equipment 175

176

__J

51
Acct.

No.

MONTH YEAR TO DATE

Debits Credits Debits Credits

SALES

Storage 401

Processir^ 402

403

Sales - meats 404

Sales - frozen foods 405

Sales - other merchandise 406

TOTAL SALES

Deduct - COST OF SALES

Direct labor - processing 502-a

Processing supplies used 502-b

Direct cost charged to plant

owned products 502-c

Cost of meat sold 504

Cost of frozen foods sold 505

Cost of other merchandise sold 506

TOTAL COST OF SALES

GROSS MARGINS

PLANT

Indirect labor 11

12

Plant supplies 13

Utilities and power, light,

heat, and water 14

Repair and maintenance 15

Rent 16

17

Laundry 18

Depreciation - building and

equipment 19

Taxes - real estate, etc. 21

1 22

23

SELLING and DELIVERY

Wages, salaries, and commissions 31 ^ Advertising and promotion 32

33

34

Truck expense 35

Depreciation - truck and auto 36

37

38

39

52
Acct.

No.

MONTH YEAR TO DATE

Operating Expenses - Continued 1 Debits Credits Debits Credits

GENERAL ADMINISTRATIVE

Salaries - off./prop./part. 51

Salaries - office 52

53

Office supplies and postage 54

Insurance 55

Dues and subscriptions 56

57

Telephone and telegraph 58

Bad debt expense 59

Donations 61

Travel and entertainment 62

Payroll taxes 63

Other taxes and licenses 64

Legal and professional fees 65

Depreciation - office equipment 66

Miscellaneous 67

68

69

Total operating expenses

Operating profit or loss

Add: OTHER INCOME

Discounts earned 701

702

Interest and earnings - financing 703

Bad debts recovered 704

1

Gain or loss on sale of fixed

assets 705

Cash - over and short 706

707

Deduct: OTHER OUTGO

Discounts (cash) allowed 801

Interest expense 802

803

Life insurance expense 804

805

806

807

808

809

Net profit or loss 1 i

53

V. S. GOVERNMENT PRINTING OFF CE 11^59 O - 31180;:
other Publications Available

Business Management of Frozen Food Locker and Related Plants,

Marketing Research Report 258, James J. Mullen and Lloyd M.

DeBoer

Merchandising Frozen Food by Locker and Freezer Provisioning

Plants, Marketing Research Report 313, Bert D. Miner

1955 Survey - Frozen Food Locker Plants, Utilization Research

Report 1, P. C. Wilkins, L. B. Mann, and B. D. Miner

Producir^ and Merchandising Sausage in Small Plants, FCS

Circular 5, C. G. Randell

Inedible Offal as a Hog Feed - Processing and Feeding by Small

Slaughterers, FCS General Report 37, Bert D. Miner

Operating Costs of Selected Frozen Food Locker Cooperatives,

Bulletin 71, Paul C. Wilkins and L. B. Mann

A copy of each of these publications may be obtained upon request

while a supply is available from --

Information Division

FARMER COOPERATIVE SERVICE

U. S. DEPARTMENT OF AGRICULTURE

WASHINGTON 25, D. C.