CAPITAL ACCOUNT—such is the name given to what concerns the capital stock of a railway or other public company. In authorizing a railway company—which we take as an example—parliament gives power to raise so much money by shares, and so much by borrowing. The amount that may be borrowed is equal to a third of the share stock, but it cannot be legally borrowed until at least one half of the share stock has been paid up. The form of borrowing is that of giving a mortgage on the whole property of the railway; the deed of mortgage, which is called a debenture, expresses the sum lent, the rate of interest that is to be paid, and the period for which the loan is given. See DEBENTURE. Unitedly, the money got for shares and by debentures forms the capital of the company; and, deposited in a bank, constitutes the capital account. Oa this fund the directors of the company make draughts to pay for the land, and all the works connected with the line, as also rails, locomotives, car riages, and, in short, everything involved in perfecting the railway up to the point of working. From the first, the holders of debentures receive interest, which must be paid in all circumstances, and the principal must be returned at the conclusion of the period for which it has been borrowed; at least, such are the ordinary obligations towards debenture holders. For the share part of the capital no return is made till the railway has been in operation, and drawings conic in from the traffic.
As soon as traffic commences, there begins a new account called the revenue account, and which, kept in the same or a different bank, has no connection with the capital account. This, it may be judged, at once introduces a great complexity into the finan cial affairs of railways. In ordinary businesses, the profits of a concern are the free pro ceeds after deducting interest on capital and all expenses; and no attempt is made to keep two accounts, or to detach one part of the revenue from the other. As sharehold ers in a railway occupy the position of partners in a business, it might be expected that they would receive a divisible part of the proceeds equal to their respective claims after all expenses whatsoever had been paid. This is not the plan usually adopted. In gen eral, the shareholders are only temporary partners; they buy shares in order to sell them at an advance. What they mainly look to is the rise on shares in the market, and there fore any process of management which can promote this important object meets their approval. Hence, the keeping of two accounts, two bank pass-books, and two books of
checks. From the revenue account are drawn all payments for wanes, rates, and taxes, coke, oil, and other petty furnishings, also repairs on carriages and locomotives, main tenance of way, and general management. What remains is the fund, whence is paid, first, the interest on debentures, and second, the dividend of the shareholders. From the C. A. are drawn all other outlays: first, the repayment of principal to debenture holders, and, second, the expenditure for new carriages and locomotives, new rails, and other substantial repairs upon and additions to the plant. As all railway traffic exceeds the expectations formed respecting it, the demands on the C. A. for fresh additions of one kind or other become exceedingly onerous. Were the shareholders to look to ultimate advantages, they would sanction the payment for permanent improvements out of the current revenue; but, as has been stated, shareholders for the most part care nothing for the remote and contingent prosperity of the undertaking, and will not or cannot make a corresponding sacrifice. Greatly diminished by primary outlay, and now operated upon for all sorts of additions and improvements, the C. A. is at length exhausted, and new powers have to be got from parliament to create new shares and new debentures, and which shares are only taken up by being guaranteed a preferable claim on the funds of the company. Where a large extension of traffic must be pro vided for, the creation of fresh capital is indispensable and legitimate; but it is equally open to remark that the C, A., as usually conducted, affords the means of enormously increasing the company's obligations, and is, in fact, an expedient to give good divi dends to present holders of stock at the cost of their successors. Perceiving what must be the consequences, those among the proprietary of the small and more prudently man aged railways who look to permanent investment, lose no opportunity to urge " that the C. A. shall be closed, and the whole expenditure of the company, including the pay ment of dividends and interests, be taken from revenue." Objections are raised to these remonstrances, sometimes on plausible, sometimes on sufficiently valid, grounds; and it may be said that in remarkably few cases have railway companies been able, or been disposed, to close their capital account. See RAILWAYS (Legislation and Manage ment). W. C.