Measurement in Accounting

Abstract

This paper is an extension of earlier work which was given expression in Towards a General Theory of Accounting (1961) and The Resolution of Some Paradoxes in Accounting (1962). The former paper made only brief allusion to a general rule of measurement. It appears as the principle of uniformity of valuation; namely, the operations of addition, subtraction and relation necessary in any form of summarization can only be performed validly if the separate items are valued on a uniform basis. At that time the view was taken that it is necessary to specify the ideas and things with which accounting is concerned before considering how they shall be quantified and whether any possible quantification rules will constitute a measurement system. In this paper we turn to the latter questions. It transpires that the assumption of adaptive behaviour in a changing environment necessitates a set of quantification rules which shall be a measurement system. It transpires also that the straight application of the principles of measurement entails a set of periodical summaries which are expressed in contemporary monetary terms. The general conclusions of the earlier papers, and their implied criticism of traditional procedures, are thus reinforced. The proposals for the measurement of income, however, differ in some material particulars from those of the 1961 paper. It may appear that at some points the argument is at variance with the line of argument in the earlier papers. For example, the terms and appear not infrequently in the other papers, but it has been found to be possible to do without them, except for brief references, in this exposition. In part their elimination is a deliberate attempt to remove words which have repeatedly given rise to misunderstanding; but it seems also that greater clarity of argument is possible if the distinction is made between acts of valuation which always have reference to the future, and acts of measurement which have reference to the past and present. The term current cash equivalent has been used in this paper with the same connotation as was intended by earlier uses of value or exchange value. Again, as a matter of consistency in argument, the idea of replacement cost has been abandoned; replacement cost implies a replacement decision which, it is contended, can not be made until all present facts are brought to attention. The