OUTLAY AND INCOME 17 



28. The Business Venture. Income can be produced only 

 by risking capital and expending effort on the chance that this 

 outlay will be returned "with interest." In a properly con- 

 ducted business this risk is assumed by the proprietor, who 

 makes himself personally responsible for the management. 

 Ownership is represented in modern business by capital stock. 

 By means of this same device, extensive frauds are possible by 

 which the real managers of a business shift both risk and loss 

 to the stockholders or owners. Legitimate risk, borne by those 

 responsible for the results, is unavoidable and is one of the 

 chief characteristics of the business venture. Aside from the 

 risk of accidental losses by fire, theft and other factors, the final 

 ever-present risk is that income will be insufficient to offset the 

 required outlay, and insolvency result. 



29. Exchange. Income from business ( 26) is derived 

 almost entirely from sales of merchandise or manufactured 

 products, which constitute an exchange of goods for money. 

 The transaction is in theory completed with the delivery of the 

 goods, but payment is often deferred and constitutes a debt 

 on the part of the purchaser, which is a debit or asset to the 

 business. The losses which occur through ultimate failure of 

 debtors to pay are finally debited as an expense. 



30. Disposition of Income. With the receipt of income 

 the cycle of effort is completed and the purposes of the business 

 are accomplished. An accounting must now be rendered to 

 the owner. In case the proprietor's account and ownership is 

 terminated by a sale of the entire business, the settlement would 

 consist of: 



Payment of outstanding bills, wages and other outside obli- 

 gations. 



Return of outstanding and borrowed capital. 

 Distribution of surplus as profit to owners of the capital 



invested. 



In the annual accounting of a going concern the profit and 

 loss account takes care of the expenses. The surplus or deficit 

 in annual income, shown as profit or loss, is carried into the 

 annual balance sheet for future disposal. 



