Charles E. Sprague
OUTLAY AND INCOME*
Abstract: This early address by Sprague, who is acknowledged as a telling in-fluence among pre-classical American accounting practitioners and thinkers, pre-views the insight and sophistication which is set forth in his famous Philosophy of Accounts.
I cannot agree with those who teach that the profit and loss ac-count contains on one side losses and on the other side profits. There are even purists who object to the title "profit and loss," on the ground that its two nouns are misplaced, and who would call it "loss and gain," evidently thinking of it as a column of losses and a column of gains. But if the book-keeping is that of a business con-cern, then the expenditures made under such heads as Insurance, Interest, Office-Expense, Salaries, Commissions, Brokerage, Rent, &c., are in no sense losses; they are business outlays deliberately made for the purpose of producing income which it is hoped will exceed the outlay. This is the essence of business as distinguished from private or professional life. Outlay for the sake of income is business; income for the purpose of meeting expenditure is not. Therefore I contend that the profit and loss account is a unit. It is composed of outlay and income, not of losses and gains. When the results of outlay and income have by its agency been compared and the excess ascertained, then and not till then do the books show a profit or a loss. Profit and loss is therefore named in the correct order, since its result is, normally, profit.
Books could be kept and by strict double-entry in which none of these accounts of outlay and income, these tributaries to the profit and loss account should appear. The equation between liabilities plus proprietorship, on the one side, and assets on the other would be preserved just as strictly as now. If an entry comes up involving outlay, and it be asked to whom or what this shall be charged, then, supposing Mr. Smith to be the proprietor, the answer would evident-ly be, charge it to Mr. Smith, and this would be in a certain way cor-rect; it would bring out correctly the final result, "how much is Mr. Smith worth?" But such a method would possess no advantage over single-entry, except that of furnishing through the trial-balance a
*A lecture delivered before the Institute of Accounts, October 16, 1889.