4 
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 fer which.the accomumnt.was created. This should 
never be done. The amounts set aside to defray expenses aré 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 ey arise 1 
the future, a special account should be opened for this purpose. 
Srinkine [I'unp 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 pericdically 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 (I 1). 
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. Tocredit 
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: 
