Bl'L.LKTlX 863; V. S. DEPARTMENT OF AGRICULTURE. 



Surplus (I 2.) 



Debit: 



Credit: 



1. With any debit balance of the Loss 



1. With the amount of surplus as shown 



and Gain account at the close of the 



by the Balance Sheet at the time of 



fiscal year. 



opening the books. 





2. With the net profit as shown by the 





credit balance of the Loss and Gain 





aecount at the close of the fiscal 





year. 



Any balance from the Surplus Adjustment account should be carried to the Surplus 

 account at the end of the fiscal year, either as a debit or credit. In many organiza- 

 tions the Surplus account represents the excess of assets over liabilities and capital 

 stock. However, when a certain amount, commonly called a Reserve for Sinking 

 Fund (see p. 19), is set aside out of earnings each year to retire the capital stock at 

 a definite time, this reserve, together with the Capital Stock and Surplus, equals the 

 excess of assets. 



When the opening Balance Sheet shows the liabilities, capital stock, and accumu- 

 lated reserves to be in excess of the total assets including good will, the Surplus account 

 will show a debit balance. When this is the case there has evidently been a loss 

 through operation which in reality amounts to an impairment of capital. The amount 

 of such debit balance should be debited to an account captioned Deficit. At the 

 close of each following fiscal year, the Loss and Gain account and the Surplus Adjust- 

 ment account should be closed into this account until the deficit' is written off. 



The Deficit account is in reality the debit side of the Surplus account, but should 

 be carried under a different caption. For example, if there is no surplus and a Less i: 

 sustained during the year, the loss shown by the debit balance of the Loss and Gain 

 account is an impairment of the capital and should be carried to the Deficit account 

 by the following Journal entry: 



Debit. Credit. 



$1,500 Deficit. 



Loss and Gain §1, 500 



(To close Loss and Gain into Deficit account.) 

 If the company makes a net profit of $2,000 during the succeeding year, the Journal 

 entry will be as follows: 



Debit. Credit. 



$2,000 Loss and Gain. 



Deficit $1, 500 



Surplus 1,500 



(To close the Deficit and Loss and Gain account.) 



Loss and Gain (I 3). 



Debit: 



Credit: 



1. With tho balance of any account 



1. 



With the balances of all Income 



charger i with purchases of raw mater- 





accounts. 



ial for manufacture. 







2. At the close of the fiscal year or 







other accounting period with the 







debit balance of all Expense ac- 







counts. 







