Revenue Realization, Going Concern and Measurement of Income.

Abstract Accountants are generally agreed that the assumption of the going concern is an essential accounting convention or "principle." It rules out the use of liquidation values in statements and in addition, forms the basis of depreciation accounting, that is, that fixed assets and intangibles should be amortized over their useful life rather than some shorter period. Current practice in regard to the valuation of merchandise, including raw materials and partly finished goods, is curiously inconsistent and illogical. Asset valuation and income determination were based on an incomplete application of the going concern convention tempered by conservatism. The realization convention provided a theoretical justification for the valuation of inventories at cost, a practice that was inconsistent with the going concern convention. The logic of the realization convention requires that assets be valued at cost until the sale is made. The realization convention also affected the concept of income. The area of complementarity between the realization and going concern conventions lies in the area of fixed assets, whereas the area of basic conflict lies in the area of current assets.