20 



BULLETIN .865, U. S. DEPARTMENT OF AGRICULTURE. 



Unusual losses, new equipment, and other items are frequently included in this 

 account, as well as the expense items for which the account was created. This should 

 never be done. The amounts set aside to defray expenses are charged into the Loss 

 and Gain account against gross income, and will ordinarily be allowable as a deduc- 

 tion in preparing income tax returns, whereas amounts set aside to provide for unusual 

 items are not allowed as a deduction in preparing such returns, and are not chargeable 

 in the Loss and Gain account against gross income. 



Should it be desirable to set up a reserve to meet a contingency which may arise in 

 the future, a special account should be opened for this purpose. 



Sinking Fund Reserve (H 5). 



Debit: 



Credit: 



1. With the amount of the sinking fund 



1. 



With the amount to be set aside 



when the obligations for which it 





periodically to provide for the pay- 



was created have been paid. 





ment of a fixed obligation at some 



(Credit Surplus.) 





future time. 



(Debit Sinking Fund Appropria- 

 tion.) 



It should be noted, also, that a Sinking Fund Reserve can be created out of profits, 

 whether or not a sinking fund as described on page 9 has been created. 



I. NET WORTH. 



Capital Stock (II). 



Debit: 



Credit: 



1. With the par value of shares retired 



1. With the par value of all shares 



or canceled. 



issued as shown by the Balance 





Sheet at the time of opening the 





books. 





2. With the par value of all shares sold 





subsequently. 



The capital stock of a corporation is divided into shares, each share usually having 

 a designated par value. These shares may be transferred from one individual to 

 another without affecting the capital of the corporation. The ownership of a share 

 of capital stock is evidenced by a stock certificate. 



In organizing a corporation , a subscription list should first be prepared , the signers 

 of which bind themselves by law to purchase the number of shares subscribed. No 

 certificate of stock should be delivered to a stockholder until his subscription has been 

 fully paid. Until such payment is made, a temporary certificate may be given to 

 the subscriber to be exchanged for the regular stock certificate on completion of pay- 

 ment. 



When a subscription list has been prepared and the corporation formed on this 

 basis, it is often provided that the subscription may be paid in installments. To credit 

 these partial payments direct to the capital stock account is undesirable. In view of 

 this, when the subscription list has been completed an entry should be made debiting 

 Subscription account and crediting Capital Stock account for the amount subscribed. 

 When payments of the subscription are made, either by cash or note, in full or in part, 

 these payments should be credited to Subscription account and not to Capital Stock 

 account. The following entries will illustrate: 



