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Focuses on the concept of accounting based on the book 'The Economic Theory of the Location of Railways,' by A.M. Wellington. Use of the concept of rate of return on investment; Discussion on the profitability of investment in railways; Illustrative examples. [ABSTRACT FROM AUTHOR]

The article examines the use of the concept of the rate of return on capital in accounting. The use of the concept has a long history. The post-war growth of awareness of and literature on the subject is symptomatic of a changing attitude of accountants away from bookkeeping and towards an operational understanding. Contemporary accounting authors acknowledge the fact that similar methods have been used throughout the financial community for computing bond yields, insurance premiums and rates on leased facilities. However, the author of this article finds little reference in accounting literature to the debt that is owed to engineers and economists who wrote about this topic in the late nineteenth century and prior to the Second World War. Alfred Marshall, the eminent economist, discussed the concept in his principles. Possibly recent writers on capital budgeting have been too engrossed in the constant money value convention. The so-called cut off point is also explicitly mentioned by Marshall. The entrepreneur will push investment of capital until there seems to him no good reason for thinking that the gains resulting from any further investment in that particular direction would compensate him for his outlay.