16 BULLETIN 994, TJ. S. DEPARTMENT OF AGRICULTUEE. 
are similar in all plans and these will be touched upon before con- 
sidering specific plans or methods. 
PRINCIPLES OF FARM-ACCOUNTING PRACTICE. 
The first step in starting the detailed accounting study on farms 
is to make a detailed inventory at the beginning of the farm year. 
It is essential that the farm year start before active field work on 
the season's crops begins, and it is a common practice to start either 
January 1, February 1, or March 1. Particular emphasis should be 
laid upon the accuracy of taking the opening inventory. Cost 
studies are usually organized on a five-year basis, and it is essential 
that a proper start be made, with a careful, accurate, detailed inven- 
tory of all the forms of capital that enter into the farm business. 
Because of its importance it is felt that it is worth while to mention 
a few of the principal items that often cause difficulty in making a 
satisfactory farm inventory. 
REAL ESTATE. 
The term ''real estate," as it is commonly used in investigational 
work, includes the land, buildings, and land improvements such as 
drainage systems, water systems, fences, and other physical im- 
provements. 
The question at once arises as to the most serviceable basis of 
valuing the land. The productive capacity of the land is often 
advocated as the proper basis, but all farm business analyses indicate 
that considerably lower values result when the earnings are capital- 
ized at going rates of interest than obtain when going sale values 
are used. For example, in parts of the corn belt the farm earnings 
net 2\ to 3 per cent to the owner-operators of land with a valuation 
of $250 per acre. With the values of land arrived at by capitalizing 
the earnings at 5 or 6 per cent the land values would be correspond- 
ingly reduced. 
The weakness of capitalizing a cash land-rental charge to arrive 
at a value lies in that thus we capitalize only the current year's 
rent, leaving out of consideration the future earnings, which should 
be considered. Theoretically, this method might be used if land 
were more stable in production, with long-time records of per- 
formance available. It should be kept in mind that the values 
arrived at on a sale basis may involve unearned income which has 
been added to the price in anticipation of future advances in value. 
Thus, in arriving at the net farm earnings, interest on unearned 
capital is involved as a factor. Also, in showing the farm earnings 
in the form of a certain per cent of the capital value, or in the form 
of labor incomes, there is ample opportunity for misinterpretation 
of the results and for a wide variation in the results, depending upon 
the value placed on the land. The common practice is to carry the 
