264 NATURE OF CAPITAL AND INCOME [Cmar. XV

who choose to do so to reinvest them and receive in return
new stock certificates.

§6

From the foregoing accounts it is clear that the theory
of capital and income which has been explained applies
practically to the accounting ordinarily employed in business.
 Such accounting is, in fact, nothing but a method of
recording the items of income and their capitalization at
different points of time. A merchant’s balance sheet is a
statement of the prospects of his business. Each item in it
represents the discounted value of items which he may
expect later to enter in his income account. Rightly interpreted,
 the capital account merely represents as a whole
the capitalization of expected items in the income account;
the fluctuations of the capital account correspond with the
deviations from the standard income in the items of the income
account; and where there are no such fluctuations, every
item of the income account is equal to the standard income
from the corresponding items of the capital account.
There are, of course, numerous practical modifications
 of this general statement to be made when actual
accounts are treated. It was shown in Chapter VIII that
such modifications are due to a variety of circumstances,
such, for instance, as the influence of that important element,
 risk; the desire of accountants to maintain their
capital accounts unchanged from year to year; and the
omission from their capital accounts of such two-sided
items as leases, employee-contracts, and the like. But none
of the exigencies of practice militate in the least against our
theory of capital and income accounts. In all cases the
income account simply records the values of the services
and disservices of articles of property through any given
period; and the capital account records the present values
of those articles, as resulting at any given instant from the
expected values of their services and disservices.