SURPLUS

A surplus is the amount of money considered to be a profit in any general accounting period, which is available for carrying forward into the next accounting period. An economic surplus is similar to a net profit; it is the surplus resource in any business, household, or government after all cost, expenses, interest charges, and dividend payments have been made in any accounting period. A surplus should not be used synonymously with net profits, but rather should designate undivided profits, profits that have not, or do not need to be distributed in dividend payments to any investors or stockholders. A surplus, as well, may be accumulated profits of past periods which are left invested, and which continue to earn investment rates. This kind of surplus is known as an earned surplus. The American Institute of Certified Public Accountants has recommended that the term "surplus" be discontinued in favor of more specific and descriptive terms. Though surpluses continue to exist, the use of the term now rarely appears in balance sheet accounting presentations. More precise language is used, instead, such as "contribution in excess of par or stated value," or "additional paid-in capital." A surplus may arise for reasons other than having profits after all costs have been covered. A surplus might arise from a donation, or an appreciation of the value of owned business property, as well as other reasons. In banking, surplus refers to a portion of stockholders equity, and in economics, surplus refers to a situation in which at a given price, quantity supplied is greater then quantity demanded, and to alleviate this surplus prices must be lowered.