In estimating the inventory at the end of the year, a deduction should be made for the decrease in the value of the live stock under the plant and also for the machinery. Perhaps 5% for the live stock and 10% for the machinery and tools will be a fair deduction. Under materials and supplies those items have been inventoried which are to be carried over each year from the preceding year. In the case of seeds the amount required must be deducted from the amount sold, or they must appear as a charge in the expense account. Ordinarily they are carried over from year to year and thus become a part of the permanent investment. Since on the farm under consideration there is a considerable monthly income from the sale of butter fat and eggs, it may be possible that no allowance will be needed in the inventory for current expenses, although it is always desirable to carry a bank account in order to be able to make favorable purchases when opportunity offers. As a part of the work in a course in farm management, the writer asked each student to secure the financial history of an actual farm covering a period of three years. The financial history of 30 farms during the years 1901 to 1903, inclusive, and 28 farms during the years 1902-1904, inclusive, was thus obtained and is given herewith. SUMMARY OF FINANCIAL HISTORY OF FARMS Average size of farm, acres 143.21 133 Average area in crops (includes pasture), acres 121.1 112 Capital at end of three-year period $14,009 $8,893 Capital at beginning three-year period 12,962 7,704 ------- ------ Difference $ 1,047 $1,189 Interest on capital, $13,485, at 5 per cent[B] $ 674 $ 415 Increase in capital per annum 349 396 Average yearly receipts 3,613 2,208 Average yearly disbursements 1,907 1,221 Average yearly cash balance 1,706 987 Average yearly farm income 2,055 1,383 Average yearly labor income 1,381 968 These figures show the application of principles enunciated in this chapter. A careful reader will have no difficulty in recognizing how the different items have been obtained. For example, the difference between the receipts and disbursements in the first column gives the cash balance of $1,706. The farm income, $2,055, is obtained by adding to the cash balance $349, which is the annual increase in the capital. The labor income is obtained by subtracting from the farm income the interest on the capital at five per cent. The amount of capital is determined by dividing by two the sum of the inventories at the beginning and end of the period.[C]