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Simple English definitions for legal terms
initial surplus
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A quick definition of initial surplus:
Initial surplus is the extra money a company has at the beginning of an accounting period, but it doesn't come from the company's operations during that period. It's like having some extra money in your piggy bank before you start earning your allowance. This surplus can come from things like selling stock for more than it's worth or receiving donations. It's important to keep track of this surplus because it can affect a company's financial health and decisions about how to use the money.
A more thorough explanation:
Initial surplus is the surplus that appears on a financial statement at the beginning of an accounting period. It does not reflect the operations for the statement's period.
- If a company has $10,000 in surplus at the end of the year and $2,000 in initial surplus at the beginning of the year, the total surplus for the year is $12,000.
- When a new business starts, it may have initial surplus from the investments made by the owners or investors.
The examples illustrate that initial surplus is the surplus that exists before any operations or transactions take place during a specific period. It is important to differentiate initial surplus from the surplus gained from the operations of the business during the period.