MEASUREMENT OF PROFITS FOR EXECUTIVE DECISIONS.
Abstract This article attempts to examine from the managerial standpoint the major issues of profit-measurement on which economists and accountants have generally taken different positions. The focus is on the meaning of depreciation, the treatment of capital gains and losses, and the price level basis for valuation of assets. The role of futurity in economic values and in business decisions underlies all three of these issues in measuring profits. The estimation of income requires a forecast of all future changes in demand, changes in production processes, cash outlays to operate the business, and price changes. If this were available, a program could be planned for borrowing and investing cash so as to allow for an annual cash dividend payment that would be equivalent to the uniform consumption of real goods. A balance sheet occasionally contains intangible assets such as good will or patent protection, which nominally are anticipation of the future. But their valuation on the books is not closely related to expectations. An economist's balance sheet has quite a different interpretations since it is an attempt to aggregate the future earnings of the firm's properties now on hand.
- DOI
- 10.2308/tar-7070698
- Volume
- 26 (2)
- Pages
- 185-196
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref