This paper deals with only that part of the broad subject of depreciation which relates to the method of accumulating adequate reserves through which to retire property that ceases to be useful. The discussion is further restricted to the field of public utilities as they exist in the United States because of the special conditions under which their operations are conducted. Nearly all public utilities are subject to regulation by governmental bodies, usually state commissions. Theoretically, their operations are monopolistic, and one of the primary functions of regulation is to fix rates which will yield a return to investors consistent with that which they could obtain from investments in other industries with similar risks. Refinement in such accounting is in many respects more important than in other industries operating on a competitive basis with prices determined by the law of supply and demand. The early years of public utility history were devoted to pioneering and development work, with comparatively little attention to accounting

Companies formed under the English laws may be either Joint Stock Companies, that is formed under the Companies Act, or Statutory Companies, generally formed under a Private Act of Parliament incorporating the clauses of the Companies Clauses Act and such other Acts as may be applicable. In the case of ordinary Companies not having public utility characteristics, the legislature has tended to leave the Companies themselves to adjust questions of finance as between the shareholders, on the one side, and the customers, on the other side, as normally the field of supply is open for the operations of competitors to the advantage and protection of the public. In the case of public utility concerns, however, the same degree of possible competition is not available, so that the "undertakers" are not unreasonably restricted as to dividends in the interests of the consumers who have to pay the tariffs for their supply. The mere regulation of dividends, however, would not be sufficient protection for consumers unless limitations were also placed upon the accumulation of surplus profits

Conventionally, depreciation is a deduction from the original cost, the actual cost of the assets. That actual cost of the assets is not written up generally in order to accord with the present value of the property. There have been accountants who have recognized the objection to the accepted definition that depreciation represents loss of value, and have attempted to find substitutes. A more plausible theoretical definition of depreciation is "Amortized Costs." That is to say, it is that portion of the cost of the asset which has, in fact, been written off, which has been charged against the operating expenses of the previous year. It would seem to imply that a business which, wisely or unwisely, has not in fact written off anything for depreciation, has not suffered a depredation, because if a business does not amortize its capital cost, then there is no amortized capital cost, and by definition there would not be any depreciation. There should be the use of accrued depreciation accounting, rather than the use of retirement reserves in public utility regulation

The object of depreciation accounting and the object of accounting generally, is to show costs. With this view, the accounts would supply the financial records of a business. Materials which are purchased and used in a particular accounting period, go entirely with their full cost into the operating account for that period. A machine with a life of ten years is purchased no less for operating purposes, and ultimately must be included entirely in the operating costs. If the purpose of accounting is to show costs, then the original cost of the machine must be charged originally to capital account and then distributed or allocated by periods to show the cost of operation for each period of the ten years. The object of public utility regulation is largely rate control. The significance of the accounting, including all provisions for depreciation, depends upon ratemaking policies, how and upon what basis rates are made. The common conception, however, is that rates shall be based on costs. Reasonable rates are rates that cover the cost of service. The rates in the aggregate provide for the aggregate costs. This applies to operating expenses, to maintenance, taxes and to all the ordinary operating items

The separation of liberal from non-liberal studies may be attempted on the basis of the content of the several subjects offered. In most conservative quarters "liberal arts curriculum" means a course of study in which emphasis is laid upon linguistics and literature, especially upon the classics of Greece and Rome. Mathematics is by tradition admitted to the liberal arts fold, perhaps because of its disciplinary value, perhaps because by the mastery of its principles one acquires a tool for use in the pursuit of the natural sciences. There appear to be at least three specific objectives of accounting instructions as offered by a liberal arts department of economics. First, it provides students the mastery of a tool which is most useful in the pursuit of other economic studies. In this respect accounting is not unlike a course or courses in statistical method. Secondly problems of taxation, public regulation, and public administration, for example, require for their solution informed intelligence of accounting as well good intentions. Third, accounting study and instruction is not without its disciplinary phases. Many of the most fundamental concepts of accounting are abstractions, as for example, proprietorship, net worth, equities, revenue, expense, profit, loss, gain, income, surplus and reserves