Is Surplus the Reverse?

Abstract The article presents information on the use of two words, surplus and reserve, in accounting. If the word "reserve," now used on both sides of the balance sheet in a number senses, is made to disappear except as the descriptive caption for retained earnings in the net worth section. In this capacity it regains more of its dictionary meaning, shaking off the sundry technical connotations involved in the miscellaneous use to which it has been put. At the same time the word "surplus" disappears from accounting vocabulary, relieved of a use which has long troubled accountants and misled lay readers. It is true that introduction of a new accounting convention calling for descriptive analysis in financial statements of earnings kept for corporate purposes might operate to expose situations in which such retentions were unnecessarily large. In these cases the attempt to assign reserve labels to parts or to the whole amount might prove a give-away to the condition. The suggested new terminology and related technique and convention would doubtless be unwelcome under such circumstances.