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The above examples show the essential steps in calculating income, which are as follows: 1. State gross earnings. 2. Deduct operating or manufacturing expenses, includ ing selling, administrative, maintenance, and depreciation. 3. The result is net earnings from operation. 4. Add income from other sources. 5. The result is total net income. 6. Deduct taxes, interest, rentals, sinking fund charges, And other fixed charges. 7. The result is surplus for the year applicable as earn ings on shareholdings. 8. Deduct preferred dividends. 9. Deduct common dividends. 10. The result is surplus from the year's operations to be credited to surplus account. It seems hardly worth while to point out that income and expenditure are by no means identical with cash receipts and cash disbursements, though this elementary distinction is not always grasped, even by learned judges and lawyers. It has been pointed out, for instance, by an English authority, that among the legal judgments which have been delivered in the courts of the United Kingdom are such absurdities as the following:* Profits for the year, of course, mean the surplus in receipts after paying- expenses and restoring the capital to the position it was in on the 1st of January in that year. Fixed capital may be sunk and lost and yet the excess of current receipts over current expenses may be applied in payment of a dividend. It has been only a few years since the Attorney-General of the United States interpreted the law imposing a tax on corporate income, which had just been passed by Congress, as meaning that a tax had been imposed on the cash receipts minus cash disbursements. His decision was promptly overruled, but among accountants it has not been forgotten....