THE VALUATION OF BUSINESS CAPITAL: AN ACCOUNTING ANALYSIS.

The article presents an accounting analysis of the valuation of business capital. An important correlative effect of these characteristics is a tendency for the reported rate of return to be exaggerated in a period of rising prices and to be understated in a period of falling prices. A business concern is an entity formed for the purpose of obtaining revenues for its owners. This purpose is characteristically fulfilled through investment in types of assets which can be transformed into receipts from customers. Under the influence of conservatism, a restricted definition of cost has been employed by accountants. Cost is ordinarily limited to cash outlays made or promised to acquire the item in question, certain general effects of conservatism may now be indicated, costs assigned by accountants to inventories and fixed assets are likely to be understated because of the restricted definition of cost employed, conservatism also dictates that certain costs, even though explicit and verifiable, be denied status as investment in assets and tending to understate recorded capital, flows from a failure to record future cash receipts, except as they assume the form of enforceable contracts with outsiders.