Abstract Accounting for reserves has received considerable authoritative comment in the last few years. The Reserve for Sinking Fund is an outstanding example of a reserve account requiring further discussion in order to make its true nature and effect clear. Viewing the account under unusual circumstances will permit a fresh approach to its problems; it is therefore proposed to consider first the Reserve for Sinking Fund in the records of a governmental utility. The equitable aim of a governmentally owned utility should be to have its rates cover the costs of rendering service to present users of its facilities. Operation at a profit with the profits being turned over to the municipal authorities for general use can only be justified by the assumption that the amount of utility service consumed is a reasonable basis for allocation of part of the burden of taxes. The problem of equity also extends to the charges assessed against successive generations of users of utility service. To build up a large surplus and retain it within the utility indicates that present rate payers are making it possible for future users of the service to pay less than the full cost of rendering that service to them.
Sidney Davidson (Sun,) studied this question.