BOOK-KEEPING FOR FARMERS. 905 



In addition, attention is directed to excessive expenses or to possible 

 economies. Small items often amount to a considerable total and this 

 attracts attention in a way that individual items would fail to do. In this 

 connection it may be doubted whether many farmers, except those who 

 keep regular books, have any definite knowledge in regard to the amount of 

 their private expenses or cost of living. Their business and private moneys 

 are rarely kept separate, and in many cases what is left over after the 

 business and private expenses have been met is looked upon as representing 

 the whole of the profits from farming. Undoubtedly many farmers are 

 securing larger profits than they themselves realise, owing to their private 

 expenses being in excess of what they estimate. 



Preliminary Considerations. 



It is first necessary to lay down a few definite rules before going into 

 details. Many systems premise a clear line of demarcation between the farm 

 proper and the house, practically on the basis that to ascertain the actual 

 profits of a farmer, as compared with those of a merchant or a professional 

 man, the two must be kept very distinct. Though this is only the logical 

 outcome of any correct system, the constant analysis of all accounts makes 

 it undesirable for at least the first few years of a beginner's career in book- 

 keeping. 



Again, one of two aspects of the profit assessment may be chosen. The 

 first is to charge the business with the owner's estimated salary and treat 

 the total net return as a direct interest on the capital invested — e.g., if, after 

 paying all expenses (including salary of say £200), a profit of £160 is made 

 on a capital of £1,600, 10 per cent, per annum has been earned. 



The second method is to charge the market rate of interest on the capital 

 invested (i.e., treat the owner's interest in the farm in exactly the same way 

 as if it were a loan) and take the balance as net income for the year. Using 

 the same figures as before in this case, 5 per cent, per annum on £1,600 

 would be £80. and the net profit is, therefore, £360 less £80 interest, or 

 £280, which is the farmer's payment for time, trouble, and experience. 

 In each case the total income is the same ; but inasmuch as he would have 

 received the 5 per cent, on his capital as a mere investment without labour, 

 and as any allocation for salary can only be assumption, the second of the 

 two systems is perhaps the more desirable. 



In the case of a partnership, where the two or more parties are of unequal 

 experience, or where one is not taking an active part in the business, the 

 question assumes a different aspect and must be decided on its merits. 



A popular suggestion for treating farm accounts is to take each of the 

 paddocks separately, debit its proportion of rent, labour, seed, manure, &c, 

 and credit the net returns. This, though possible to a skilled accountant, 

 and perhaps comparatively easy where the crop occupies the ground the 

 greater part of the year, should rather be discouraged, especially when dealing 

 with mixed farming, as it involves so many mere approximations and esti- 

 mates. Probably the only instances where it is directly beneficial are either 

 in conjunction with experiment plots, when accuracy in the seed and 

 manure used and in the yield obtained is imperative, or where a farm of only 

 three or four paddocks is confined to one crop and each is dealt with at 

 one time. 



