Although the title of this article would indicate that it is primarily concerned with assets, this is not the case. It is much more directly focused upon the liabilities including net worth, or the equities in those assets. These equities, through their priorities, their contractual restrictions upon the corporation and its assets, limit their use and disposal. They also indicate the participation in the assets as well as their earnings and losses. The true significance and relationships of the equities to the assets, as well as to one another, is usually obscured. Accountants particularly have failed to give due recognition to them. It is the purpose here to state these limit actions on assets, to point out their significance, and to show how serious has been the failure of accountants adequately to appraise them in their statements. Not infrequently certain classes of purchases are financed through short term or intermediate term notes. These notes may have special characteristics, which limit assets and their disposal. But these are quite similar to those found in certain bond indentures and preferred stock deeds. Hence, a few of the restrictions, common to all of these equities, as a class, may be discussed together. There are many provisions requiring the maintenance of given slims of working capital.

The article focuses on creditor's protection and stockholder's responsibility. The extent and nature of the responsibility of stockholders is determined very largely by their own contractual agreements with the corporation and by the contracts between creditors and the corporation. Along with changes in the evolution of the corporation there have been equally significant changes in these contracts. Notable among these in recent years have been those accompanying the employment of no-par stock for both preferred and common securities. No-par stock with its greater flexibility has presented many new problems in stated capital and stockholder responsibility-creditor protection. These, too, reflect changes in the contractual relations of stockholders and corporations and whether agreeable to creditors or not, they affect creditors' margin of protection. Although no-par stocks may appear as a distinct phase in the evolution of corporation securities, this may well be doubted. As pointed out later, they simply carry out the natural trends.

A survey of the progress of accounting as a science quickly discloses that advancement in the field has been largely dependent upon an adequate differentiation among assets, expenses, liabilities, income, receipts, expenditures and the like. A correct separation of expenditures into assets and expenses on the one hand and of receipts into liabilities and income on the other hand, makes possible the attainment of modern accountancy and financial statements. The early systems of bookkeeping made no adequate distinction between expenses and assets and income and receipts. These items are intimately related and to differentiate among them means the correct calculation of profits and losses and financial conditions. A correct statement of assets cannot be made without a correct computation of expenses. Likewise, an accurate measure of income is not attainable without an adequate separation of income from receipts. If any one of these four items is incorrect, then either one or both of the two major financial statements must likewise be fallacious. Second only in importance to the recognition of the distinction among these items, is the determination of the moment when expense was separated from the assets and when the income arose in the assets.

When the growing conscious recognition of the importance of financial data in the ordering of everyday business and economic life, the need of basic economic facts is providing a constantly enlarging opportunity for the accounting profession. The early conceptions of the functions of the auditor were such as to confine him to the duties of a mere checker and verifier of debits and credits. As business became more complex in its interrelationships there has been a compensating broadening demand for the acceptance of new and formerly unrecognized responsibilities by the auditor. The control of business enterprises within and among themselves has emphasized the importance of the budgetary and managerial aspects of the accountants' reports in enabling business units to coordinate their internal and external activities in the scheme of the economic plan. The principles of auditing are partially adaptations from other fields; they are practices from other fields which it has been found feasible to incorporate into auditing procedure and routine, in the attempt to approach as closely as possible to a realistic presentation of dynamic facts.