The Logic of the Cost and Revenue Approach.

Abstract Many accountants have long been dissatisfied with the valuation hypothesis. It has not only resulted in wide variations in actual practice but has failed to provide principles from which we can reason logically and arrive at conclusions that correspond with observable facts. As the accountant faces unfamiliar problems, he cannot meet them by applying principles of valuation; he has to learn how to handle these individually. His first ideas on accounting are conveyed to him in terms of valuation; but he soon learns that accountants do not usually practice valuation but account for a certain type of costs. The valuation hypothesis can be proved to be false by demonstrating that it does not correspond with observable facts. All one need do is consider his own experience, and he will realize that accountants practice valuation only in exceptional instances. The Executive Committee of the American Accounting Association has for many years been working on the unsatisfactory situation in accounting theory, and as is well known has produced two reports, both considered tentative. In these reports the Committee has adopted, among others, two hypotheses: (1) that accounting is primarily a process of accounting for monetary outlay costs; and (2) that it is a process of matching costs with revenue.