The Accounting Review Vol. 36 No. 3 1961
NONACCOUNTING FOR NONINSURANCE.
Abstract
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.
- DOI
- 10.2308/tar-7096318
- Volume
- 36
- Issue
- 3
- Pages
- 406-408
- Language
- en
- Sources
- crossref openalex