Income and earned surplus;

              Accounting Research
BULLETINS
*
Issued by the Committee on Accounting Procedure, American Institute of Accountants, 13 East 41st Street, New York 17, N. Y.
Copyright 1947 by American Institute of Accountants
1. For a number of years the committee has studied the form and content of financial statements and has considered the means by which they may be made more useful for the purposes they are designed to serve. As a result of this inquiry, and taking cognizance of the expanded public use of corporate financial data, the committee believes it appropriate to issue this statement
(a) citing briefly the viewpoints with respect to the principal
debatable area of the income statement, and
(b) recommending criteria for use in identifying material
extraordinary charges and credits which may or should be excluded from the determination of net income.
2. In dealing with the problem of selecting the most useful form of income statement, the danger of understatement or overstatement of income must be recognized. An important objective of income presentation should be the avoidance of any policy of income equalization.
3. The committee directs particular attention to certain facts which serve to emphasize that the word "income" is used to describe a general concept, not a specific and precise thing. Initially, it is important to iterate that the income statement is based on the concept of the "going-concern." It is at best an interim report. Profits are not fundamentally the result of operations during any short period of time. Allocations as between years of both charges and credits affecting the determination of net income are, in part, estimated and conventional and based on assumptions as to future events which may be invalidated by experience. While the items of which this is true are usually few in relation to the total number of transactions, they sometimes are large in relation to the other amounts in the income statement.
4. It must also be recognized that the ultimate distinction
259
December, 1947
No. 32
Income and Earned Surplus