Cash
Debit (+) Credit (-)
$10,000 $1,000
$9,000
Once again, with every debit there must be a credit. So, at any time you should be able to add up all of the
debits and all of the credits in the general ledger and they should be equal. This is called a trial balance. If
they are not equal, an error has occurred since the last time you did a trial balance. So, you will need to re-
view the entries since the last trial balance to nd the error.
Which System should I Use?
The best system for you will depend on your individual situation. Below are some of the advantages and
disadvantages of each system.
Single Entry (cash) Accounting
Advantages
• Simple – accounting entries limited to recording cash transactions (except for capital assets)
• Provides information for income taxes purposes
• Is familiar to the agricultural community.
Disadvantages
• Limited ability to track nancial performance through the year.
• Limited ability to do nancial analysis.
• Does not provide net worth analysis (unless balance sheet is updated independently)
Double Entry Accounting
Advantages
• Net worth statement is always up-to-date
• Same data builds both the income statement and the net worth statement.
• Accrual adjustments are made automatically
• Provides access to current and detailed nancial information throughout the year to track nancial perfor-
mance and conduct nancial analysis.
Disadvantages
• More complex and time consuming than cash account.
• Is an unfamiliar system to most agricultural producers.
• Many of the traditional “tax” adjustments methods used in cash accounting (e.g. purchasing inputs in the
previous year, delayed payment of grain sales, cannot be used)
As a general rule, single entry accounting may be best if you have a simple business and your main purpose
for keeping records is for income tax purposes. Conversely, if you have a complex business and want to
perform nancial analysis throughout the year, the double entry system may be best. If you just want to do
year-end nancial analysis, single entry accounting with accrual adjustments at the end of the year may be
preferred.
File C6-33
Page 14
. . . and justice for all
The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and
activities on the basis of race, color, national origin, gender, religion, age, disability, political
beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all
programs.) Many materials can be made available in alternative formats for ADA clients. To
file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten
Building, 14th and Independence Avenue, SW, Washington, DC 20250-9410 or call 202-720-
5964.
Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in
cooperation with the U.S. Department of Agriculture. Jack M. Payne, director, Cooperative
Extension Service, Iowa State University of Science and Technology, Ames, Iowa.