Abstract 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.

Journal Article Mitchell's Business Cycles Get access Joseph Schumpeter Joseph Schumpeter Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 45, Issue 1, November 1930, Pages 150–172, https://doi.org/10.2307/1882530 Published: 01 November 1930

Reviews the book "Accountants Working Papers," by Leslie E. Palmer and William H. Bell.

Abstract Many credit men and bankers tend to place a high value upon the condition of the current ratio as found in balance sheets in extending credit to borrowing clients. In many instances the ratio of current assets to current liabilities is taken for granted without adequate reasons being given for the underlying causes that brought about the change from a former position. In a particular balance sheet, the ratio may show the same figure of, three to one at the close of each of two fiscal periods, or it may show a change to a decidedly higher ratio of four to one, or again to a lower ratio of two to one. The credit man should analyze his balance sheet far enough to ascertain whether or not the improvement in the working capital was caused by the investment of inside money or outside money. Bonds involved mortgage liability and increased overhead costs. Capital stock naturally has no foreclosure possibility, but demands its rent. The changes in the ratio, caused by increases or decreases in the working capital are fundamental. They are apt to be permanent, therefore, should be analyzed carefully, in order to ascertain if the financial structure has been altered seriously by the change, as for example the flotation of bonds to fund the current debts.