Journal Article Welfare Economics and Rationing Get access M. W. Reder M. W. Reder New York City Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 57, Issue 1, November 1942, Pages 153–159, https://doi.org/10.2307/1881818 Published: 01 November 1942

For many years accountants and credit men have used the current ratio as an index of the debt-paying ability of business enterprises. But the current ratio portrays only static conditions and it has been found necessary to use additional ratios in order to measure the dynamic aspects of business not shown by the balance sheet alone. The most common definition of the current ratio is that it is an expression of relationship between current assets and current liabilities. The criterion establishing the difference between a current asset and a fixed asset and a current liability and a fixed liability is respectively realization and liquidation within a period of one year from the date of the balance sheet. However, the maturities of current assets and current liabilities range through the year and no basis exists for the belief that the range of asset maturities averages out against the range of liability maturities with a resultant offsetting effect. A reliable measure of solvency should reveal the amount of funds that will be available to meet obligations as they fall due. To do this, all of the assets must be converted to cash value and expressed in relation to the liabilities as they mature.

Reviews the book "Production, Employment and Productivity in 59 Industries," by Harry Magdoff, Irving H. Siegel and Milton B. Davis.

Increasing activities of the various Federal agencies in examining, investigating, and regulating commerce and industry have no doubt taken away from the accounting profession some of the work formerly performed by public accountants. The profession as a whole has not suffered from the loss of such engagements, but on the contrary, has immeasurably benefited in other ways from these increasing activities by the Federal government. Private industry and individuals are seeking more and more the expert assistance of skilled accountants in interpreting and following the laws, rules, and regulations of the various governmental agencies affecting accounting principles and practices. Many practicing accountants are now called upon to testify before governmental agencies on behalf of their clients, and consider such work as professional routine. It is likely that Federal agencies have taken the responsibility of examining and investigating many cases of an accounting nature, which were formerly under the control, and supervision of accountants engaged in private practice, or was not examined at all.