Patents—A manufacturer owns a patent the value of which depends upon future profits resulting from the manufacture and sale of the article which it covers. It is customary to place a value on the patent, and to consider it an asset of the business.
Good-Will—A man has established a business which has become extremely profitable, and in selling the business he places a certain value on the reputation or goodwill which he has built up.
Speculative—A firm having a surplus not required in the business sometimes invests it outside of the business with the expectation of realizing a profit by selling at an advanced price. They buy grain or provisions, mining or railway stocks, etc. Or an investment may be made in the stock of some manufacturing business to be established in the town, because such an enterprise, if successful, will naturally result in an increase in their own business.
52. Examples of Fictitious Assets. Fictitious assets are seldom found on the books of other than corporations where a large initial promotion expense is involved. A good example of a fictitious asset is:
Advertising—A business house may decide on an average annual expenditure for advertising; but to be effective, the expenditures for the first two or three years may necessarily exceed this amount. The excess is considered as an investment since it is expected that as the business becomes firmly established the annual expenditure can be reduced to an amount even less than that estimated, gradually reducing the amount carried on the books as an asset. To illustrate:
REVENUE ACCOUNTS
53. The term revenue (synonymous with income) is used to designate those items which, when brought together in an account, exhibit the profit or loss of the business.
Revenue receipts are the receipts which originate exclusively from the sale or exchange of the commodities or things of value for the handling of which the business has been organized.
Revenue expenditures are those expenditures connected with the expense of operation or administration of a business, including such items of expense as postage, printing, salaries, rent, etc.