[t is preferable that depreciation be accumulated in a depreciation reserve account, charging costs of 
production each month and crediting the depreciation reserve in the general ledger. This reserve is directly 
iffected when renewals are made and when the property is exchanged, sold, replaced, or abandoned. 
CAPITAL AND REVENUE EXPENDITURES 
In cost accounting practice it is necessary that intelligent decisions be made as to the ultimate disposi- 
ion of expenditures, that is, whether they are chargeable to the asset accounts or to the current cost ac- 
rounts. Those charged to the asset accounts are capital expenditures, and those charged to the cost accounts 
ire Mevenue expenditures. 
Capital expenditures apply to such expenses as, in the aggregate, represent the cost of the increased 
:arning capacity of the plant as a whole or of particular parts thereof, which has been secured over the earn- 
ng capacity known to exist before the said expenses were incurred. 
Revenue expenditures, which are charged to current costs of production, apply to such expenses that 
nust be incurred in order to obtain advantage of the earning capacity of the plant or of particular parts there- 
if, in order that such capacity may be maintained at the required standard. 
OPERATING RESERVES 
Operating reserves measure the amount of the cost of operations which, while not necessarily ex- 
sended at the present time, will positively be incurred according to past experience. They represent costs of 
production incurred and unpaid, and the only connection they have with surplus is that, if unnecessarily high. 
‘hey will be sent in part to the credit of the surplus account in order to remove any prejudice that it has 
wiffered through over-conservatism in the charges to current manufacturing costs. 
The following reserve accounts are recommended for use in the modern steel foundry cost accounting 
wvstem 
Reserve for Depreciation. A definite sum is charged to manufacturing costs, under General Overhead 
Expense, each month, and the same amount is credited to the depreciation reserve account in the 
ledger. 
Reserve for Furnace Rebuilding and Repairs. A definite amount per net ton of metal charged into the 
furnace is charged to Metal Department costs monthly, and this same amount is credited to the 
reserve account in the ledger. As expenditures are made for furnace rebuilding and repairs 
they are debited to the reserve account in the ledger. The debits to this ledger account and the 
‘onnage charged during a period, form the bases for establishing the rate per net ton of metal 
charged to be absorbed in costs monthly. 
Reserve for Flasks. A definite amount per net ton of castings produced is charged to Molding De- 
partment costs each month, and the same amount is credited to the reserve account in the 
edger. As expenditures are made for new flasks and repairs, thev are debited to the reserve 
account in the ledger. 
Reserve for Doubtful Accounts. A definite amount per net ton of good castings or a definite percen- 
tage of total casting sales, is charged to costs each month under General Overhead Expense, and 
she same amount is credited to the reserve account in the ledger. As had debts accur thev are 
lebited to the reserve account in the ledger. 
Reserve for Loss on Defective Castings After Shipment. This covers losses from returned castings 
and losses from work done on castings, the cost of which is charged back to the foundry. A 
efinite amount per net ton of good castings or a definite percentage of total casting sales, is 
charged to costs each month under General Overhead Expense, and the same amount is cred- 
ited to the reserve account in the ledger. As losses on defective castings after shipment from 
‘he foundrv occur thev are debited to the reserve account in the ledger.