I2 FOREST VALUATION 



of property constructed by human labor, as, for example, ma- 

 chinery and buildings. The charging off of depreciation, unless 

 accompanied by an appropriation of income to replace the capital 

 originally expended, corresponds to a loss of capital. If re- 

 placed from income, it serves to diminish the net income avail- 

 able for dividends. In either case it improves the accuracy of 

 the capital account. 



A capital account ought to show at any time the total amount 

 of capital invested in permanent or durable assets, or the actual 

 cost of these assets, whether or not there has been any sub- 

 sequent increase in value. The correction for depreciation, 

 which is justified by the fact of diminishing value, is in itself 

 purely a matter of accounting. The amount of depreciation 

 written off on the books may not, and usually does not, coincide 

 exactly with the actual loss in value at the time. Should no 

 account be taken of depreciation, the capital account would 

 merely show that the owner had neglected to reduce the " value " 

 or appropriate any of his income as replacement of capital cost. 

 This is an unwise and dangerous practice, but it is optional 

 with the owner except where provision for depreciation is pre- 

 scribed by law for the protection of stockholders in order to 

 bring the capital account into closer agreement with the actual 

 value of the assets. 



21. Outlay and Income Accounts. Outlay and income ac- 

 counts, more often termed profit and loss accounts, deal first 

 with the expenditures for which services are received and which 

 are not therefore chargeable to capital account or regarded 

 as investments. A second class of expenses usually included 

 in this account is the cost of raw materials to be manufactured, 

 goods to be resold, supplies to be expended in service, and fuel. 

 These items represent capital and their value will be included 

 in an inventory. But in most forms of business this investment 

 is transitory in character, the raw materials are turned over as 

 quickly as possible, and the resultant income is expected to more 

 than cancel these outlays during the current year. 



Outlay and income accounts are for this reason kept as open 

 accounts, to be balanced, usually, at annual intervals. Outlay 



