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.