Presentation of income and earned surplus (supplement to bulletin no. 35);

              Accounting Research
BULLETINS
•
Issued by the Committee on Accounting Procedure, American Institute of Accountants, 270 Madison Avenue, New York 16, N. Y.
Copyright 1951 by American Institute of Accountants
July, 1951 NO. 41
Presentation of Income and Earned Surplus
(Supplement to Bulletin No. 35)
1. In part (c) of paragraph 2 of Accounting Research Bulletin No. 35, issued in October, 1948, the committee recommended that extraordinary items omitted from the determination of net income pursuant to Accounting Research Bulletin No. 32 should be dis-played in the surplus statement* and not as deductions from or ad-ditions to the item of net income in the income statement. In its revised Regulation S-X issued in December, 1950, the Securities and Exchange Commission made provision in item 17 of Rule 5-03 for the addition to or deduction from net income or loss, at the bottom of the income statements filed with the Commission, of items of profit and loss given recognition in the accounts during the period and not included in the determination of net income or loss.
2. The committee's purpose in issuing Bulletin No. 35 was to prevent misconceptions as to whether the earnings for the period were the amounts designated as net income or were the final and often more prominent amounts shown on the income statements after the deduction or addition of items excluded from the deter-mination of net income. The committee believes this purpose will best be served if reports to stockholders continue to display such items in accordance with the recommendation contained in Bulletin No. 35. The change in Rule 5-03, however, does not affect the deter-mination of the amount to be reported as net income or earnings for the year and, in the committee's view, the additions or deductions at the foot of the income statement after determination of net in-come are equivalent to direct credits or charges to earned surplus.
* In Bulletin No. 39 the committee published as an approved objective a recom-mendation of the subcommittee on terminology that in balance-sheet presentation the use of the term "surplus" be discontinued. The committee believes that further ex-perimentation with substitutes for the term is desirable in financial statements pre-pared for the general public. However, the committee plans to continue to use the term "surplus" in its bulletins as being a technical term that is well understood among accountants to whom the bulletins are directed.
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