Sale of financed cattle

by Aura
(Owen Sound)

Hi, I don't know how to record these transactions: we bought cattle on a loan. Then we sold the cattle, paid the loan and the interest off and made money on the sale. Please help!

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Hi Aura,

I don't have any experience with doing the books for a farm, so you will have to check out these entries with your accountant as I know farming has some special rules for income tax purposes. These rules may affect the way an entry is recorded in your books.

CRA permits cash or accrual basis accounting for farming activities. I'm going to use accrual based accounting for this example.

To record the purchase of the cattle and related financing:

DR Cattle Inventory (a current asset account)
CR Cattle Loan (a liability account)

To record sale of the cattle:

DR Cash in Bank (current asset account)
CR Cattle Sales (Income account)
DR Cost of Cattle Sold (a COGS account)
CR Cattle Inventory (an asset account)

To pay off cattle loan:

DR Interest Expense (an expense account)
DR Cattle Loan (a liability account)
CR Cash in Bank

If you sold everything as you indicated, your inventory and loan accounts should be zero once you've recorded everything. Your Cattle Sales - Cost of Cattle Sold should equal the amount of money you made.

P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

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