3. Divisions of productive illustrate these relations, consider the case of a farmer who is producing wheat, barley, oats, cattle, sheep, poultry, eggs and, in addition, operates a small truck garden where he grows a number of varieties of vegetables. Under the old methods which were practised a few years ago, his farm and the labors of his family and himself would perhaps supply him with practically every need. Accounting was hardly needed, since he could see the state of hiS resources. But under present conditions he must buy many of his necessi ties ; if he hires helpers they must be paid in money, which can be obtained only by selling the products of his farm. He must, therefore, add to his labors as a producer both those of a buyer and those of a seller. It now becomes increasingly difficult for him to carry the records of his many transactions in his head and he must proceed to write them doWn in some orderly and systematic manner, thus adding accounting to his required duties. The growth of the farmer's activi ties also brings about added financial responsibilities to which special attention must be devoted. Thus, he may be compelled periodically to borrow money in order to harvest his crop promptly or to perform a large amount of plowing in a short time. The essen tial features of productive industry, in short, are buy ing, producing, financing, transporting to market, selling and accounting. In most cases buying is con sidered as a part of producing, and transportation to market as a part of selling, so the four divisions of production are then, manufacturing or growing, financing, selling and accounting.
If, now, this farmer is prosperous, he may keep only such accounts as deal with his receipts and dis bursements. He will record all purchases for ferti lizer, machinery, insurance, repairs, drain tile, etc., and will also record all money received from sales of pro duce. The balances from these general accounts will always inform him how he stands, as a whole, with his business world.
4. When cost records become necessary. —But sup pose he is not prospering, or suppose he wishes to know what lines of effort are giving him his highest returns. He then must begin to keep an individual account with each activity into which he wishes to in quire. Many farmers of the better informed class now keep records of each cow or even of each hen in making economic studies of this kind. Almost in stantly, however, the farmer under discussion finds that these individual cost accounts are decidedly differ ent in character from the general accounts he has been keeping. The general accounts were accurate and he could account fully for all the items entering therein. But these individual accounts contain items that are not definite.
For instance, the same man that feeds the cattle helps to market the eggs. The insurance on the barn is chargeable partly to one activity and partly to an other. Some of the general supplies which he has
purchased spoil on his hands; other supplies are not fully accounted for, because of waste, or failure to obtain accurate account of their distribution. Some of the supplies that he has purchased are used in so many different activities that he finds it difficult to apportion them with any semblance of accuracy. He also finds it practically impossible accurately to appor tion his labors in his truck garden over the many prod ucts grown therein. He must, therefore, be content with approximation to a certain extent in making up these accounts. The greater the detail into which he wishes to go the more difficult it becomes to segregate the costs of the several lines of effort with which he is concerned. It is clear, however, that by making in telligent approximations he can separate the cost of his several activities so as to obtain a fairly clear view of their relative values, and if these approximations are skilfully made the summaries of his cost accounts should coincide fairly well with those of his general accounts. This particular difference between gen eral accounts and cost accounts should be carefully noted. The general accounts must be accurate and must balance; cost accounts are seldom exact and it is often difficult to make their summarized totals agree closely with those of corresponding general accounts which are based on much more accurate statements.
If this farmer is very progressive or has a specula tive mind, he may record the relative costs of pro ducing different products under varying conditions, with a view to guiding himself in future work. That is to say, he begins to collect statistical data based on his cost accounting which will enable him to predict, in some degree at least, the results of future efforts. This was once a secondary feature of cost accounting, but it now bids fair to be as important as the original function performed by cost-finding methods, namely, that of finding out what the actual costs of produc tion are.
The general principles underlying the farmer's cost records are applicable to all branches of productive industry tho the methods of applying them may vary widely. The illustration of the farmer was purposely selected to show that these principles apply even to handicraft production of the simplest kind. A brief consideration of any of the handicraft callings, par ticularly as they grow in magnitude, will disclose analogous conditions, and will assist in making clearer the increasing complexity of these principles as they appear in large modern factories. It is in the highly organized modern factory that the greatest complexity is met; the following discussion is therefore directed largely to factory methods. The general applica tion, however, should not be lost sight of.