Abstract The article comments on an article that excluded bad debts from the calculation of periodic earnings. The fundamental premise providing the basis for the argument to exclude bad debts from the calculation of periodic earnings is that uncollectible accounts are not homogeneous with other expenses of the earnings statement. Accordingly, the appropriate criterion for judging the homogeneity of the elemental data on the income statement is whether a causal linkage (pecuniary motive) exists between the inflows and outflows of net assets caused by the relationship with customers. Before determining whether bad debts are within the extension of this standard, consideration must be given to the contention made by some that bad debts are adjustments to the revenue stream. Consideration can now be given to whether bad debts are causally related to the inflows of net assets from customers. To answer this question one must consider the ability of management to anticipate and control such expirations of net assets. In summary, the causality criterion seems a more appropriate basis for judging the homogeneity of the expenses and revenues to be used to calculate operating income. Applying this standard to uncollectible accounts shows these asset expirations to be consistent with other expenses incurred by management for the generation of revenue.

Abstract Reviews the book "Auditing Principles," by Howard F. Stettler.