capital invested in the business. The difference between the opening and closing inventories shows the increase or decrease in the value of the farm property. 17. Farm Receipts are derived from two sources: (1) direct and (2) indirect. The direct receipts are represented in the cash received from the sales of crops, live stock, live stock products, for labor for others and from miscellaneous sources. The indirect receipts would arise in an increase in the inventory due to permanent improvements or to appreciated values of any of the various forms of property. Values should not be inflated for the purpose of showing a gain in the inventory. Debts cannot be paid on anticipated rises in land values or in values of property unsold. 18. Farm Expenditures. Items paid for in cash for the support of the farm only can properly be classed as farm expenditures. Items of personal or family expense should not be charged against the farm in determining the profits from farming. A decrease in the inventory is considered as an indirect expenditure. The amount of the decrease should be deducted, with the direct expenditures, from the receipts to show the net farm income. 19. The Farm Income is the difference between receipts and expenses. It is the return for the use of capital and unpaid labor. The farmer and his investment unite in earning the farm income. To learn what is earned by the unpaid labor only, the amount that the value of the investment would earn if placed at interest, must be subtracted from the farm income. 20. The Labor Income is the farm income less interest on the capital invested in the farm business. It is what the farmer receives for his labor and supervision of the farm business in addition to the use of a dwelling and to that part of the family living furnished by the farm. 21. Determining the Labor Income. The following summarized record of a year's business on a farm illustrates the process of calculating a labor income. Value of farm at the beginning of the year (land and buildings)....$ 8,800.00 At end of year $ 8,800.00 Value of machinery, wagons, harness, etc., at the beginning of the year (from Inventory). Value of all stock at the beginning of the year (from Inventory)..... Value of hay, feed, etc., not held for sale at the beginning of the year (from Inventory).. Totals... 287.55 At end of year 1,895.00 At end of year Average capital (add the totals of both inventories and divide 349.50 2,773.00 .$12,145.02 $ 138.80 806.00 923.10 1,177.55 $ 3,045.45 $ 53.00 255.00 62.00 .$ 370.00 Animal products (from Cash Record) Increase of capital2 (from Inventory) Other expenses not cash (Board and Unpaid Decrease of capital2 (from Inventory). Income from capital and operators' labor (receipts less Interest on average capital at 5% (taken from income). $ 2,675.45 607.25 .$ 2,068.20 22. Farm Enterprise. A farm enterprise is any crop, class of live stock or manufacturing process which constitutes a part of the farm business. 1 Include value of crops that will be sold. > When the total value of farm and equipment increases during the year, the increase is counted as a receipt, and when it decreases during the year, the decrease is counted as an expense. To obtain increase or decrease find the difference between the two total inventories. CHAPTER III THE BUSINESS SIDE OF FARMING 23. Farming as a Business. Farming has not usually been considered a business. The diversity of the duties of the farmer, the area over which the operations of the farm extend and the complexity of the records required, combine in making difficult the organization of the details of farming into business form. The successful financial operation of a farm presents quite as complex problems and calls for at least as much business ability and judgment as is required in operating a store with the same investment. Farming, therefore, should be considered as a business, and the man who can produce his crops and products at the lowest cost and sell them at the highest price, investing the proceeds to the best advantage, should be considered the best farm manager. The man who knows the details of the cost of production and operation, and whose records show the profitable and unprofitable lines of production, thus enabling him to eliminate those that do not yield a profit, may be counted as the best business man. A farmer should know the elements of soil fertility. He must understand the principles of the movement of soil water, and the action of soil bacteria. He should understand the nature of plant growth and be familiar with varieties and species of plants and with the effect of one crop on the crop following. He must also be familiar with animals and their habits and know how to feed and care for them. In addition, he must know how to buy and sell to advantage, make contracts, and plan his buildings and his farm so as to necessitate a light expenditure for labor, also that he may distribute his labor to advantage over the various farm enterprises. And he should know how to keep accounts and records. The farmer in organizing his business could well follow the example of the merchant. The merchant first takes an inventory of his stock. He studies the demand for his goods, both present and prospective. He notes the supply, the cost, and the demand for each article. He calculates the labor required to operate his business and such other items of expense are considered as may be legitimately charged against the business. He regulates his purchases and his prices according to the cost of securing his goods and putting them on the FIG. 8.-Raising small fruit is a remunerative type of farming in sections where soil and climate are adapted to it and the markets are good. market. In conducting a large store business, it is customary to organize it into departments, putting some competent person in charge of each department and having the labor and accounting charges so systematized and recorded as to show the profit or loss from each department and from the business as a whole. The farmer should likewise take an inventory of his capital, stock, and equipment. He should consider the type of farming to which the soil and climate are adapted. He should consider the fertility of the soil and the demand that will be made upon it by the crops grown. He should consider, in connection with the soil fertility, the sources from which it may be renewed and at what cost. He must study the markets, the transportation, and the demand for such crops as he grows; also the cost of producing each of the crops and the probable net profit that will be returned. His labor likewise should be charged against the various crops or enterprises and used most largely on those that promise the best returns for it. In studying the problems of farm organization, interest on investment, taxes, insurance, and other expense must be included as they affect the financial result. As in a large store business, it is frequently necessary to organize the large farm into departments, keeping accounts with the dairy, with the swine, the grain crops, the garden, and other similar enterprises. Where the business is large enough, it is well to put an expert in charge of each large branch or group of enterprises, thus enabling one to use cheaper labor for performing the work or making the labor more effective by closer supervision. Where the farming is conducted as an organized business, and accounts are kept with the various lines of work, it is possible at the end of the year, to make a business statement which will show which lines have been profitable. The manager then can change his methods or drop out those lines that prove to be unprofitable and the business as a whole may be put on a better basis. 24. Investment. The investment of money in land, buildings, and equipment demands careful consideration. It is possible to pay so much for a farm that it will be impossible to produce sufficient revenue to meet the expense of operation and to pay a normal rate of interest on the money invested. This is particularly true where low-priced products are produced. A farm may be highly productive but so located that it will be impossible to market the produce on a profit bearing basis. One should study closely the market facilities of the neighborhood and raise supplies which can be successfully marketed locally, or which can be transported to a market |