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ATLANTA BALTIMORE BIRMINGHAM BOSTON BUFFALO CHARLOTTE CHICAGO CINCINNATI CLEVELAND DALLAS DENVER DETROIT JACKSONVILLE KANSAS CITY LOS ANGELES MINNEAPOLIS NEWARK NEW ORLEANS NEW YORK PHILADELPHIA PITTSBURGH PORTLAND H ASKINS & SELLS PROVIDENCE SAINT LOUIS SALT LAKE CITY SAN DIEGO CERTIFIED PUBLIC ACCOUNTANTS SAN FRANCISCO SEATTLE TULSA WATERTOWN BULLETIN ~~ BERLIN LONDON MANILA PARIS SHANGHAI EXECUTIVE OFFICES 15 BROAD STREET, NEW YORK HAVANA MEXICO CITY MONTREAL VOL. XII NEW YORK, NOVEMBER, 1929 No. 8 THE capital of a corporation is divided into two parts: that which revolves and that which is fixed. The revolving or working part is supposed to increase as it works. The fixed part has a habit of decreasing, and the decrease has to be absorbed by the increase of the part that works. Capital is an abstract term. It denotes a certain number of dollars invested in an enterprise. The concrete evidence of capital is found in the form of goods, or property, or representations of money, to which dollar values have been assigned. If the things which represent working capital increase in amount, through use, their counterpart of necessity must increase. If capital is a standard by which financial condition is to be judged, then any increase in values in excess of the amount contributed as that standard, may be regarded as surplus. The surplus account was intended originally, no doubt, to show the increase, through use, in the amount of working assets. It was designed to show how much could be extracted from those assets without diminishing the amount originally invested in them. But necessity, expediency, and the march of progress have made of the account, as originally conceived, a heterogeneous affair, difficult to describe, and meaningless except when subjected to the merciless test of strict analysis. Into it, of late years, have gone amounts representing estimated increases in the value of physical property, market appreciation of highly speculative common stocks held as investments, arbitrary apportionments of contributed capital, adjustments resulting from conversions of capital liabilities, etc., etc. The prime purpose of a surplus account was to show the amount available for distribution as cash dividends. It has become an account, in many instances, which shows anything but that. The abuse of the surplus account has resulted in a reaction which bids fair to restore the account to its proper meaning and use. The efforts of the American Institute of Accountants to bring about the practice of designating such surplus as "earned surplus" and to differentiate it from all other forms of so-called surplus, are worthy of prolonged applause. Surplus, without doubt, is the excess of assets over liabilities and capital. But, more and more, fortunately, modern practice is coming to the point of relating the surplus to the assets in which it rests; in differentiating that part which is represented by accretions to current assets, and What Is Surplus?
What is surplus
Haskins & Sells Bulletin, Vol. 12, no. 08 (1929 November), p. 61-62
|Source||Originally published by: Haskins & Sells|
|Collection||Deloitte Digital Collection|
|Digital Publisher||University of Mississippi Libraries. Accounting Collection|
|Identifier||HS Bulletin 12-p61|