Guides and compasses;

              ATLANTA PORTLAND
BALTIMORE HASKINS & S E L LS BIRMINGHAM PROVIDENCE
BOSTON SAINT LOUIS
SALT LAKE CITY
CBHUAFFRALLOOT TE SAN DIEGO
CHICAGO CERTIFIED PUBLIC ACCOUNTANTS SAN FRANCISCO
SEATTLE
CINCINNATI TULSA
CLEVELAND WATERTOWN
DALLAS
DENVER BULLETIN DETROIT BERLIN
JACKSONVILLE LONDON
KANSAS CITY MANILA
LOS ANGELES PARIS
MINNEAPOLIS SHANGHAI
NEWARK
NEW ORLEANS EXECUTIVE OFFICES
NEW YORK 30 BROAD STREET. NEW YORK HAVANA
PHILADELPHIA MEXICO CITY
PITTSBURGH MONTREAL
VOL. XI NEW YORK, MARCH, 1928 No. 3
BUSINESS enterprise, if subjected,
figuratively speaking, to microscopic
examination, would be found to consist of
a multitude of transactions, the charac­teristics
of which often are forgotten in
the complexities of operations, business
accomplishments, expediency, and policy­making.
The characteristics of a profitable trans­action,
taking place in a money-economy,
are these: an enforceable right on the part
of " A " to receive from " B " an amount of
money in excess of cost; the establishment
of a profit.
Whether the enforceable right to receive,
the cost, and the profit relate to one trans­action
or to a million; to a simple article
of goods, or to properties or securities of
vast proportions and complexities; to
services, privileges, use of property, use of
funds or what not, the fundamental prin­ciples
do not change.
Simple and elementary as these prin­ciples
are, they assume great importance
and inestimable value in settling accounting
questions of involvement and moment
which arise in the practice of accountancy.
Application of the principles guide one
quickly and surely to the conclusion, for
example, that a corporation whose business
is that of investing in securities may not
declare dividends out of appreciation
attributed to an increase in market values.
Likewise, one is helped to a ready de­cision
where an industrial has a mixed
surplus resulting from revaluation of in­vestments
in affiliated companies, from
appreciation of plant property, from an
increase in the valuation of intangibles, and
from operations.
Again, the principles act as a compass
when there arises a question as to whether
a reserve for dividends payable may be
created out of surplus arising from appre­ciation,
or capital surplus, as it is called
too frequently.
Comforting though it is to have court
decisions which support the view that
dividends may not be declared out of capi­tal,
or out of capital surplus, or out of hope
and expectancy, such decisions are not
always readily available to the accountant
for reference.
Accountants who are faced with prob­lems
such as those cited, need no legal
references for the moment when they see
in their mind's eye fundamental principles
steadfastly marching on through the smoke
thrown off by modern business enterprise
as it grinds and mills about.
There are no guides and compasses more
reliable than fundamental principles.
Guides and Compasses