The Theory and Measurement of Business Income

Edgar O. Edwards, Philip W. Bell

• Publisher: University of California Press
• Year: 2023
• Print ISBN: 9780520003767
• eBook ISBN: 9780520340626
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

"This is a well-written book; the complex ideas are clearly expressed and the arguments well stated. There is some apparent rediscovery (and renaming) of old ideas, but the process is made palatable and worthwhi le by the crispness of the discussion and the un wavering penetration to the root of each issue as it arises. Most difficult problems in the social sciences, the authors note, have no definitive solutions, but simply outcomes. This book deserves a niche among the classic works in the business income literature as a significant milestone on the road to whatever outcome the future holds." --The Journal of Business "Professors Edwards and Bell give us a most satisfying study of different concepts of business income. It is rare to find authors so much at home in both economics and accounting. As they themselves suggest, time may show that their programme needs amendment; but they state the problem clearly and provide an excellent starting point. In passing, they give help on many other questions--when to replace plant, how to measure depreciation, which rate of compound interest to use in budgets, and so on. Beyond doubt their book is the most wise and original contribution to accounting theory since Professor Bonbright wrote 'The Valuation of Property' a quarter of a century ago." --The Economist
"This is a well-written book; the complex ideas are clearly expressed and the arguments well stated. There is some apparent rediscovery (and renaming) of old ideas, but the process is made palatable and worthwhi le by the crispness of the discussion and t

Table of contents

• Cover
• Title
• Copyright
• Contents 1
• I The Problem and the Challenge:
• DEMAND FOR DATA IN A DYNAMIC ECONOMY
• Managerial Competition
• Evaluation of Business Decisions
• SUPPLY OF DATA AND THE STATIONARY STATE
• The Necessary Assumptions for Validity: The Stationary State
• Substitution of Three Accounting Conventions
• THE GAP AND THE DEGREE OF ERROR
• Price Level Error
• Price Dispersion Error
• EFFORTS TO CLOSE THE GAP
• Real Income and the Price Level School
• Economic Concept of Income
• DIFFERENTIAL PRICE MOVEMENTS AND THE THEORY OF BUSINESS PROFIT
• II Core of the Theory:
• Economic Plan of the Firm Nature of Profit Maximization
• Subjective Value as a Criterion in Business Decisions
• SUBJECTIVE PROFIT AND EVALUATION OF BUSINESS DECISIONS
• Expected Subjective Profit
• Subjective Profit of a Past Period
• AN ALTERNATIVE FORMULATION: REALIZABLE PROFIT
• Expected Realizable Profit
• Conversion of Subjective Goodwill into Market Value
• Realizable Profit and Evaluation of Expectations Relationship between ex post Realizable and Subjective Profit
• General Significance of Realizable Profit
• Levels of Decision Evaluation
• APPENDIX A: DETERMINATION OF SUBJECTIVE VALUES
• APPENDIX B: A RECONCILIATION OF REALIZABLE PROFIT AND SUBJECTIVE VALUE
• III The Theory Extended:
• CONCEPTS OF VALUE AND COST Dual Flow of Assets through Production
• Distinction between Operating Profit and Holding Gains
• The Dimensions of Value
• REALIZABLE PROFIT AND ITS COMPONENTS
• Opportunity Cost: The Basis for Valuation
• Production Moments and Holding Intervals
• The Realizable Profit Matrix
• Treatment of Sales and Acquisitions
• Characteristics of Realizable Profit Summarized
• BUSINESS PROFIT AND ITS COMPONENTS Production and Time Dimensions of the Realization Criterion
• Current Cost: The Basis for Valuation
• The Business Profit Matrix
• Characteristics of Business Profit Summarized
• THE CONCEPTS COMPARED AND THE THEORY EXTENDED
• Comparison in Terms of Internal Uses
• Comparison in Terms of External Uses
• The Concepts Related
• Some Practical Considerations
• IV Consolidation of the Theory:
• THE COMPONENTS IDENTIFIED
• Current Operating Profit and Realizable Cost Savings
• Realized Cost Savings
• Realized Capital Gains
• THREE CONCEPTS OF MONEY PROFIT:
• Accounting Profit and Its Limitations
• Accounting Principles for Developing Realized Profit
• Accounting Principles for Developing Business Profit
• Some Advantages of Flexibility in Accounts
• MODIFICATIONS INTRODUCED FOR PRICE LEVEL CHANGES
• Real and Fictional Elements of Capital Gains and Cost Savings
• Modified Concepts of Measurable Profit
• Intertemporal Comparisons
• SUMMARY OF PROFIT CONCEPTS
• V Application to Inventories
• IMPORTANCE OF INVENTORY VALUES IN COST OF GOODS SOLD
• PRINCIPLES OF INVENTORY COSTING
• The FIFO Method
• The LIFO Method
• The Current Cost Method Computing Current Costs, Asset Values, and Profit Components
• Introducing Current Costs into the Accounts
• COMPARISON OF PROFIT CONCEPTS FOR A GIVEN PERIOD
• COMPARISON OF PROFIT CONCEPTS OVER TIME
• SUMMARY AND A LOOK AHEAD
• VI Application to Fixed Assets:
• IMPORTANCE OF FIXED ASSET VALUES IN MEASUREMENT OF PROFIT
• DEPRECIATION OF FIXED ASSETS: PRINCIPLES AND PROCEDURES WHEN PRICES ARE FIXED
• Determination of Asset Life
• Pattern of Asset Services and Timing of Depreciation Charges
• ADJUSTING FOR PRICE CHANGES: THE CURRENT COST METHOD
• Computing Current Costs
• Profit Components and Balance Sheet Values
• Introducing Current Costs into the Accounts
• COMPARISON OF PROFIT CONCEPTS
• VII Concepts of Money Profit:
• TREATMENT OF MONEY CLAIMS
• Cash and Other Short-Term Claims
• Securities Promising No Fixed Return
• Fixed Return Securities
• END-OF-PERIOD ADJUSTMENT PROCESS
• THE FUNDAMENTAL STATEMENTS
• USEFULNESS OF CURRENT COST DATA
• Decision-Making and Evaluation
• Stability and Cyclical Effects of Current Operating Profit and Holding Gains
• Tax Effects of Current Cost Data
• VIII Concepts of Real Profit:
• COMPUTATION OF BASIC DATA
• Fictional Realizable Cost Savings
• Fictional Realized Cost Savings and Capital Gains
• Computation of Real Gains
• THE FUNDAMENTAL STATEMENTS Real Profit Statement
• Real Comparative Balance Sheet
• Statements Wholly in End-of-Period Dollars
• THE ACCOUNTS AND THE ACCOUNTING TECHNIQUE
• A COMPARISON WITH PRICE-LEVEL-ADJUSTED HISTORIC COST DATA
• USEFULNESS OF REAL DATA
• Relevance for Decision-Making and Evaluation
• Measurement of Real Rates of Return
• Real Burden of Taxes
• IX Summary and Conclusions:
• GENERAL OBJECTIVES OF ACCOUNTING MEASUREMENT
• PROFIT-OBIENTED BEHAVIOR OF THE BUSINESS FIRM
• IMPLICATIONS FOR ACCOUNTING
• NATURE OF REQUIRED MODIFICATIONS
• Opportunity Cost versus Current Cost Values
• Proper Separation of Operating and Holding Gains
• Recognition of Gains As They Accrue
• Separation of Real and Fictional Gains
• THE ACCOUNTING TECHNIQUES
• THE HURDLE OF PRACTICALITY
• Extensive Codification an Obstacle to Change
• The Practical Matter of Objectivity
• The Search for Accuracy
• Difficulties Introduced by Technological Change
• Complexity and the Question of Costs
• The Training Problem
• Selected Bibliography
• Index