 Welcome to this Farm Accounting 101 presentation on sample accounting entry number seven, making a payment on a tractor loan. I'm Robert Page, Regional Extension Agent and member of the Farm and Agribusiness Management Team with the Alabama Cooperative Extension System at Auburn University. As we have said in earlier presentations, the Farm Accounting 101 series is intended to help Alabama producers to improve their farm financial literacy. Farmers like any other small business have the same basic financial transactions every year, so we study typical checks and deposits. We also learned the accounting principles behind these checks and deposits. Earlier in this series in sample accounting entry number three, the farmer purchased a used tractor with cash down, an older tractor trade in, and financed the balanced due with a finance contract. Today we enter a payment on that finance contract. In this sample entry, the farmer writes a check for $1,743.75 to their ag lender for the loan on their new Holland T4.75 tractor purchased in sample accounting entry number three. The $1,743.75 payment consists of $168.42 in interest and $1,575.33 in principal due on the loan. Before we show this transaction on the Excel spreadsheet, you should understand that the Excel spreadsheet we are using does not track or calculate either the original loan balance for the tractor purchase or the current balance of the loan after the payment. This spreadsheet was simply built to record checks for tax deductible interest expense. Now let's change our view to the Excel spreadsheet. Here we are in June 10, 2019, recording check number 2148 to ag lender for the new Holland T4.75 loan payment of $1,700.43.75. Now how do we allocate the rest of this check to either an expense column? And the answer is we only can allocate for tax purposes the interest paid on this interest loan payment, and that's $168.42 in column P. The balance of the payment goes on our cash balance column in column AB. Thus is the entry in balance? Yes it is. So when we take a look at our profit and loss summary on sheet three, there is the $168.42 interest payment portion which is tax deductible. The balance of the loan payment is included in the $8,147.18 cash usage. So now let's move to our accounting entry back to the PowerPoint presentation. If you've not used this spreadsheet before, it is available for producers to download. To find the spreadsheet, visit the ACES website at www.aces.edu and select the topic tab entitled Farming and then Farm Management to find the article entitled Using an Excel spreadsheet for Farm Financial Records. There is a link to this spreadsheet embedded in the article. Now let's look at the accounting entry. And in this particular case, the accounting entry for this credit card purchase is a compound entry. In line one, we have loan payable to the ag lender for the New Holland T4.75 tractor and a loan payable is a long term liability, reflecting a three year loan. The principal payment of $1,775.33 decreased the loan outstanding balance with the debit entry as shown in line one. In line two, the portion of the loan payment for interest which is a farm operational expense increases with the debit entry of $168.42. And in line three, the amount of the total check $1743.75 reduces cash on hand which is a current asset of the farm with a credit entry. Now here's a reminder note. Due to the limitations of the Excel spreadsheet we are using, we are unable to track the current loan principal balance after this payment. Loan balances are not being tracked on the spreadsheet. And finally, like all accounting entries, debit and credit entries must be in balance. In this example, total debits and credits are $1743.75. We close by saying thank you for watching today's Farm Accounting 101 presentation on sample accounting entry number seven, making a payment on a tractor loan as posted on an Excel spreadsheet. This segment of the Farm Accounting 101 series has been produced by the Alabama Cooperative Extension System Farm and Agribusiness Management Team at Auburn University in Auburn, Alabama. For additional information on the Farm and Agribusiness Management Team and other ACES programs, please visit our website at www.aces.edu.