CHAPTER VI

CAPITAL SUMMATION

§1

TreE interdependence of the balance sheets of different
firms or companies which has been revealed by the communication
 of bankruptcies exists, of course, irrespective
 of bankrupteies. It exists wherever any item
enters two accounts, in one as asset and in the other as
liability. In fact, every liability item in a balance sheet
implies the existence of an equal asset in some other balance
 sheet, for every debtor implies a creditor. Consequently
 every negative term in one balance sheet is offset
by a corresponding positive term in some other. The converse,
 however, does not follow, namely, that every asset
implies a liability.
When we attempt to sum up the items in the balance
 sheets of various persons, the positive and negative
elements may be canceled out by pairs or couples.
This method of cancellation may be called the method of
couples. Each debt or liability between any two persons
whose accounts are included, being a liability to one and
an asset to the other, constitutes a couple or pair of equal
and opposite items. We have already noted another way
in which liabilities may be canceled against assets, namely,
by subtracting the liabilities in any capital account from
the assets in the same account. This method may be
called the method of balances, since for each individual
account liabilities are deducted from assets and the net
balance is taken. Both methods must, of course, lead to

‘he same result.
90