Abstract
To the economist, profit exists if the value of net worth at the end of a period exceeds the value of net worth at the beginning of the period, after making due allowance for any new capital raised and for dividends paid during the period. To obtain his net worth values at the beginning and end of each period, the economist calculates the present value of all future net receipts of the firm. To do this, he must estimate the future cash flows, in and out of the firm, and must discount these to the present using an appropriate discount rate, which he must select. Therefore, his profit figure includes all value changes whether realized or unrealized. This chapter explains the two main reasons as to why it is not practicable for the accountant to adopt this method of profit determination. Other than those two reasons, some of the other practical issues that compel the accountant to adopt his matching method are: (1) individual sales transactions must be recorded, and in many cases the profit or loss on individual transactions must be calculated; (2) full details of individual fixed assets must be recorded and reported over their lifetime, and this involves the valuation of individual fixed assets periodically.
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