The general meaning of cost is sacrifice or in economic terms, undesirable change in value. Which value changes are undesirable depends on the point of view adopted. To a proprietor, decreases in assets and increases in liabilities are undesirable. To the business entity, increases in owners' equities in connection with the contributions of capital to the business may be viewed as costs, along with increases in liabilities and decreases in assets, but a genuine entity point of view is seldom adopted by accountants. From the residual equity point of view, preferred stock outstanding is a liability, and increases in liabilities, like decreases in assets, are costs. Expense is one category of cost. Losses, production costs, and purchase costs are examples of other categories. Recognition of the value of information about the firm's net recurring income should be encouraged; that figure is one of the most useful data an accountant can provide to those who must make investment decisions. But to show as recurring an item of cost that is actually erratic is to report the results one would like to see rather than the value changes that actually occurred. The solution is to make a sharp distinction in the financial statements between recurring and nonrecurring changes in net worth.

The American Institute of Certified Public Accountants' annual publication "Accounting Trends and Techniques" provides ample evidence that accountants do not agree on the point of view that should be taken in the accumulation of financial information and its presentation in "general purpose" statements. Likewise, a survey of the literature of accounting reveals that writers on accounting theory do not agree on the point of view that should be taken in accounting. From the standpoint of complete exposition, it would be desirable to discuss some general aspects of accounting to which the author gave some attention before starting the analysis that leads to the residual equity concept. However, in the interest of brevity, that background will be presented in the form of a related series of conclusions. The investor group includes owners, whether they be proprietors, partners, common stockholders, or preferred stockholders, and creditors, including those who lend under various contractual arrangements such as debenture bonds, income bonds, mortgage bonds, collateral trust bonds, equipment trust certificates, mortgage notes, and oral or implied credit arrangements. While it cannot be argued that investment decisions are always based entirely upon economic considerations, it can be suggested that it is appropriate for us to limit our discussion to the economic advantages and disadvantages of the alternatives facing the investor.

The three major sections that form the body of this paper have been summarized in the introduction. At this point, perhaps the author should again express appreciation to the Committee for having formulated a statement that is a substantial improvement over its predecessor. The greater length of the critical comments should not be considered to outweigh the commendations; criticisms are bound to be more difficult to express than approvals. There remain a few aspects of the Committee's report on which the author would like to comment were it not for the already excessive length of this paper. Instead, he will only direct the reader's attention to them.

One of the more unsettled areas in accounting theory is the treatment of the return to various equity-holders for the use of their capital. There is disagreement on the question of which of these distributions are costs to the firm using the capital and which are to be included as income to the firm. Disagreement also exists on the question of how to account for interest that is generally considered to be cost. These two areas of disagreement prompted the writing of this paper. But no unqualified solutions are suggested. Two general methods of handling interest on creditors' equities are advocated incurrent literature: (1) treatment of interest as an expense, and (2) handling it as a distribution of income. The first treatment exhibits the interest accruing during the period on the income statement as a cost of doing business, an overall and indirect kind of expense in the period of its accrual. This method is accepted by that group of accountants who take the point of view of the owners of business enterprises.

Reviews the book, "Depreciation Accounting and Economic Analysis," by Shinkichi Minemura.

Reviews the book "A Statement of Basic Accounting Postulates and Principles."