What is Profit?
A farm that grows 500 acres of corn would generate income from the corn. To calculate profit, you normally subtract the operating costs of seed, fertilizer, pesticides, fuel, interest, hired labor, others, from the year’s income. Growing corn also requires machinery and sometimes buildings, which add to the costs of the farm. But since these items last for several years, you do not subtract the entire cost for use of equipment and buildings the year they are purchased. Instead , you depreciate their value; that is, you prorate their cost over the useful life of the machinery and buildings so you charge only part of the cost against each year’s income. When you subtract operating costs and depreciation from the annual farm income, the result is commonly called net farm profit.
