Presentation of income and earned surplus;

              Accounting Research
BULLETINS
Issued by the
Committee en Accounting Procedure, American Institute of Accountants 270 Madison Avenue, New York 16, N. Y.
Copyright 1948 by American Institute of Accountants
November, 1948 No. 36
Presentation of Income and Earned Surplus
1. In Accounting Research Bulletins Nos. 28, 31, 32, and 33, two alternative methods of displaying items excluded from the deter-mination of net income are indicated as being acceptable. Under the first of these methods, the excluded items are displayed in the surplus statement; under the second they are shown in the income statement after the amount designated as net income. Since the issuance of those bulletins, charges and credits displayed in accord-ance with the second method have been included in many income statements in a manner and with wording which has occasioned misconceptions as to whether the earnings for the period were the amounts captioned as net income or were the final and more prom-inent amounts shown on the income statements after the deduction or addition of such charges and credits.
2. The committee believes the possibility of misconception in this respect will be minimized by the adoption of the first method in all cases. Accordingly it recommends that the net income for the period be shown henceforth without deductions or additions of items which are properly excluded from the determination of net income. These items consist primarily of charges and credits with respect to (a) general purpose contingency reserves, discussed in Accounting Research Bulletin No. 28, (b) inventory reserves, discussed in Accounting Research Bulletin No. 31, (c) extraordinary items, which, if included, would impair the significance of net income, discussed in Accounting Research Bulletin No. 32, and (d) excessive costs of fixed assets and annual appropriations in con-templation of replacement of productive facilities at higher price levels, discussed in Accounting Research Bulletin No. 33.
3. The committee's recommendation is not intended to preclude or discourage the use of the combined statement of income and earned surplus recommended in Accounting Research Bulletin No. 8, provided the figure of net income is followed immediately by
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