Accounting theory and practice, Volume 2 (of 3) : a textbook for colleges and…

by retaining part of one year’s profit to be used to make up scanty profits for other years.” [63] In “Applied Theory of Accounts.” [64] In “Modern Accounting.” The classification used here has as its basis the place of allocation of the various reserves in the balance sheet because their nature determines their place, which after all is the important consideration. From that point of view two broad classes may be marked off as discussed in the preceding pages, viz.: (1) valuation reserves, using the term with a somewhat more extended meaning than is customary; and (2) proprietorship reserves. Under valuation reserves will be included all reserves shown either as deductions from the assets or as liabilities. Here the term reserve will be limited to those items which are estimated, as distinguished from those the amount of which is definitely known. The other items which are sometimes wrongly called reserves, as discussed on page 415, will not be included here, other titles being more accurately descriptive of them.