OUTLAY AND INCOME 13 



is debited under such heads as wages, transportation, fuel, in- 

 surance, light, rent, repairs, interest, taxes, supplies and cost of 

 raw materials or goods. Income is credited, and in mercantile 

 business consists almost wholly of receipts from sale of goods, 

 to which is added incidental receipts from all other sources, 

 such as rent and interest. The capital account, kept separate 

 from this mass of fluctuating items of expense and income, 

 is brought up to date each year by entering against it the net 

 increase or decrease in actual capital resulting from the trans- 

 actions of the year. Should any of the assets whose cost is 

 included in the capital account be sold, the income thus re- 

 ceived must be credited in the capital account to replace the cost 

 of this asset. In the same manner, loss in value of capital is 

 replaced through the depreciation account. Excess of sale value 

 over cost of assets would be credited as profits. 



22. Investments versus Expenses. The distinctions, or 

 classifications in accounts, adopted by experience as suitable 

 for modern business conducted on the basis of annual returns, 

 should not be allowed to conceal the economic similarity of 

 all forms of outlay and income. Outlay is undertaken with 

 the sole purpose of thereby securing income. Those forms of 

 outlay customarily entered in the capital account, for which 

 tangible assets are received, are, it is true, regarded in the light 

 of investments rather than expense by the owner. But their 

 acquisition is merely the first step in securing income, and the 

 culmination of the process is certain to require services or labor. 

 The income will be the result of both classes of expenditure. 

 That these are really identical is seen by the fact that improved 

 property, purchased as capital, is largely the result of the ser- 

 vices of former owners. The further expenditure for services 

 by the new owner may have a sale value which a future pur- 

 chaser would enter not as expense but as capital. Expenses for 

 all kinds of service and supplies, instead of being an economic 

 loss as must of necessity be assumed in the practice of account- 

 ing, is the most important form of investment, without which 

 there could be practically no income, and the capital would 

 then be without value. The controlling purpose of the pro- 



