386 APPENDIX 



affect the profits as a farmer, however. Transactions between 

 the household and a farm element do affect the profits as a 

 farmer but not as an individual. 



Departmental Cost Method Used. Cost accounting on the 

 farm is operated under the departmental system as opposed 

 to the process, product or estimating systems. " Depart mental" 

 in this sense means a class of goods or commodities. Tims each 

 crop and each class of livestock constitutes a department. 



One department transfers property or services to another. 

 In order to find the result of each department or productive 

 element, it is necessary to favor no productive element; but 

 to make all charges and credits to each one as nearly as 

 possible on the basis they would be made if each productive 

 element were considered as the only one on the farm. In 

 other words all departments should be given the same con- 

 sideration financially because of their juxtaposition one with 

 another. 



Such an arrangement in ntini: mii:lit bring 



up the question of inter-company profits, or it might raise 

 the question of fictitious profits. Because of the simplicity <>t 

 organization and the general nature of farming operations, 

 no necessity arises for the elimination of inter-depart mental 

 profits in the way inter-company profits are eliminated l 

 preparing a consolidated profit and loss and income statement 

 of a corporation. 



Fictitious Profits. We agree with most accountants that 

 fictitious profits should not be shown in the books of account. 

 The method of handling interdepartmental transactions as 

 stated above does not create fictitious profits, however, 

 titious profits are those which show the business as making a 

 paper profit. A paper profit is one that has not resulted from 

 a corresponding increase of resources or decrease of liabilities 

 through transactions with outside parties. 



Charging corn to the swine at market price, for example, 

 does not create a fictitious profit because the profits of the 

 business are not increased as a result of the entry. It is true 

 that the Corn account is credited with a sale at selling pii.,- 

 before the product leaves the premises. If the inventory of 



