[This paper addresses a wide gap in the literature of accounting: the absence of a descriptive theory of accounting measurement. It begins with a review of accounting practices aimed at finding what accounting attempts to measure. It goes on to examine specific measurement practices to ascertain what measurement methods are used and the qualities characterizing those methods. Finally, the paper seeks a central idea that explains the bulk of accounting measurement practices. The method employed is empirical and inductive. The results range from the obvious to the surprising. Accounting measurements focus on aspects of wealth. Eight general measurement methods are used to varying extents. The qualities most frequently associated with those methods and the resulting measurements are stability of the income statement line item involved, conservatism, and flexibility and control of income measurement by management. The common thread that holds GAAP measurement practices together is the notion of market simulation; in the absence of observable current market prices for setting-specific assets and liabilities, accounting simulates such prices by selecting and blending pertinent observed market prices and other evidence in accordance with accepted principles of market economics.]

This paper addresses a wide gap in the literature of accounting: the absence of a descriptive theory of accounting measurement. It begins with a review of accounting practices aimed at finding what accounting attempts to measure. It goes on to examine specific measurement practices to ascertain what measurement methods are used and the qualities characterizing those methods. Finally, the paper seeks a central idea that explains the bulk of accounting measurement practices. The method employed is empirical and inductive. The results range from the obvious to the surprising. Accounting measurements focus on aspects of wealth. Eight general measurement methods are used to varying extents. The qualities most frequently associated with those methods and the resulting measurements are stability of the income statement line item involved, conservatism, and flexibility and control of income measurement by management. The common thread that holds GAAP measurement practices together is the notion of market simulation; in the absence of observable current market prices for setting-specific assets and liabilities, accounting simulates such prices by selecting and blending pertinent observed market prices and other evidence in accordance with accepted principles of market economics.

This paper is intended to identify and explain the operation of factors that determine the direction and magnitude of the difference between earnings computed on the conventional basis and earnings computed under general price-level accounting. A number of studies have been made for the purpose of estimating effects of Common unit accounting (CUA) on popular financial parameters, especially those involving income. Some key results of specific studies were that economist Russell J. Petersen reported slightly larger net income numbers, on the average, on the CUA basis-compared with variable unit accounting (VUA) income numbers and suggested that to the extent that this displacement effect is stable over time and across industries, investors might very well be able to adjust for general price level movements when using published financial information for decision making. The British mechanical engineering industry study showed that aggregate CUA profits for the industry ranged from 62 percent to 78 percent of VUA profits for the 6 different years studied and that earnings exceeded dividends by 124 million pounds on VUA and by only 10 million pounds under CUA over the 6 year period.

Discusses the responsibility of accounting teachers to society. Nature of the accounting teachers' responsibilities; Accomplishments of accounting teachers in the field of establishment of accounting principles and standards; Possible consequences of failure of accounting teachers to fulfill responsibilities.

The question at issue is whether the addition of inventory-cost-of -sales accounting improves upon flow measurements of the success of business activities computed without knowledge of inventory balances. The most familiar concept of net asset flows is earnings for their use, earnings as reported to shareholders, after deducting dividends on preferred stock. Another pair of flow concepts that are similar, except that one requires inventory accounting, are current flows and quick flows. Current flow is equal to earnings plus depreciation, depletion and amortization of noncurrent assets; it is approximately equal to the accountants' concept of working capital flow from activities reported on the income statement, or the security analyst's "cash flow." Acquisition costs (purchases) of inventoriable goods are deducted in its computation. Depreciation, etc., affects neither current flow nor quick flow. When current flow is computed by adding depreciation, etc., to reported earnings, nonrecurring charges and credits are sometimes included.

The accounting function must ultimately be judged by its contribution to social welfare. Accounting information affects the probability of but not the benefits from making correct decisions. The greater the dispersion of measures the more likely are incorrect decisions based on them because of the sampling errors they contain. The greater the displacement the more likely are incorrect decisions because the expected value of the measure is not equal to a more true measure of the attribute. The lower the correlation of predictions, the more likely are incorrect decisions based on the predictions. Dispersion, displacement, and low correlation are undesirable to the extent that wrong decisions have a high cost, whether out-of-pocket or opportunity cost. To the extent that resources must be consumed in reducing dispersion and displacement and increasing correlation, poor measures can be accepted as long as the costs of improving them are greater than the cost of wrong decisions arising from using them. The benefit function, which includes the benefit of correct decisions and the costs of incorrect decisions, is unique to each decision maker. Each decision maker must therefore make his own cost-benefit analysis. To do this he must have information concerning the dispersion, displacement, or correlation of the measures he uses. Each of these has a bearing on the probability of making a correct decision. For those decision makers in a position to devote more resources to obtaining better measures the cost of obtaining such measures is relevant. The dispersion criterion is applicable to both assessments and predictors. It is particularly useful in comparing the feasibility of measuring different attributes.

The article focuses on the relationship between several asset flow concepts and their potential uses. The concepts discussed in this article are earnings, the working capital concept of funds flow from operations, the net quick asset version of funds flow from operations, and a literal cash flow from operations. From the study conducted, it is concluded that the value of an asset flow concept depends upon its relevance to the problems facing decision makers and on the accuracy and uniformity with which it is applied. Accounting practices include many examples of rejection of a relevant concept in favor of a less relevant one for the sake of accuracy and objectivity in the necessary measurements. The "cost principle" is the most prominent example of this priority arrangement. Similarly, when choosing an asset flow concept for reporting to investors, or for reporting to management, the accountant may not choose the most relevant concept if it is too difficult to apply. It is found that no one asset flow concept is most relevant to all decisions commonly made by readers of financial statements.

This paper is devoted largely to matters of concern to accountants. While this project is related to the works of several researchers who have been primarily interested in the valuation of securities or in the financing of corporations, it differs from these in that it tests funds flows, it utilizes the discounted value of stocks, and it is based on a sample from a more heterogeneous population. Monetary assets and liabilities are commonly measured by one of the three most relevant techniques, thus minimizing the obvious deficiencies in their measurement. Nonmonetary assets, on the other hand are usually shown at original money cost and nonmonetary liabilities at original money receipt. This practice is most frequently encountered with respect to inventories of commodities and depreciable plant assets. "Deferred credits" liabilities payable in nonmonetary goods or services are customarily measured at original money receipt rather than by a forward looking technique. These are the measurements that limit the usefulness of the earnings and book value data that depend on them.

This paper will show direct costing, as a product costing and inventory valuation technique, to be unsatisfactory on three grounds: (1) the weakness of historical cost as a basis of asset valuation, (2) the lack of foundation for the fixed cost assumption, (3) the failure of direct costing to distinguish between wastage and utilization of productive capacity during a reporting period. Essence of cost accounting is cost classification. Some common bases of cost classification are responsibility, object of expenditure, product or service tuned out, and behavior relative to volume. These bases of classification contribute information for answering common questions regarding costs in any enterprise. One of the most widely misused terms in accounting is cost. It is one thing to say that an asset is measured by its cost; to say that an asset is a cost, or vice versa, is a distinctly different pronouncement. Adjusted historical cost means the original amount of money paid for the asset adjusted for the change in the size of the measuring unit between the acquisition date and the statement date.

The Revco method of amortization is not acceptable. If an imputed interest rate is suitable for determining asset amounts indirectly through the determination of expense, it is suitable for measuring assets as independent values. The traditional annuity method of depreciation makes appropriate use of an imputed interest rate in the measurement of assets. Before adopting the annuity method, however, one must be fully aware that its use with an imputed interest rate involves the acceptance of the corresponding set of future service values. The asset value under the annuity method of amortization is the discounted value of an assumed set of future service flows. This means that the use of the annuity method of depreciation involves a reliance on future service flows rather than historical cost for asset measurement. The cost based amortization method that yields asset values conceptually nearest to those of the annuity method with an imputed interest rate is the annuity method with an actual interest cost rate, or estimated future interest cost rate. If there is no interest cost, one cannot use it in accounting for the cost of assets. If there is an interest cost of holding assets, the total of it and the other costs should be spread evenly over the units of service received.