Principles of Accounting

Principles of Accounting

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This historic book may have numerous typos and missing text. Purchasers can download a free scanned copy of the original book (without typos) from the publisher. Not indexed. Not illustrated. 1918 edition. Excerpt: ...element. The fact that it exists in every computation involving time is very generally recognized, and two types of characteristic calculations commonly made by business men show further that computations involving implicit interest are consciously made. In the first place if a bid is to be made for the purchase of an asset the future revenues of which are definitely known, the business man will discount the revenues, thus making the purchase price considerably less than the sum of the revenues. This difference is interest. The amount of revenue received each year in such a case consists of, (1) a return of part of the purchase price, and (2) interest on the investment. The second general type of implicit interest is made evident when the manager of a plant is about to state a price for his product; for he adds a certain amount to the regular expenses to "cover the interest" on his investment. These two types of calculations, of course, are just two different methods of computing implicit interest. The first recognizes that money due in the future must be discounted to find its present value, and the second that interest is an economic cost of production. In commercial accounting the implicit interest item is seldom calculated separately but is included with the profits in the net revenue figure. For instance, the net revenue figure which is carried from the expense and revenue statement down to the credit side of the net revenue statement includes interest on the investment. If the firm is prosperous it also includes a considerabe profit, if poorly managed even interest will not be earned although this situation cannot continue without leading to bankruptcy. The operating net revenue, then, includes the interest return on the...
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Product details

  • Paperback | 206 pages
  • 188 x 244 x 12mm | 385.55g
  • Miami Fl, United States
  • English
  • Illustrations, black and white
  • 1236551222
  • 9781236551221