Income, Price Changes and the Valuation Controversy in Accounting.

Abstract The article presents information about defining and measuring income under conditions of changing prices. The first issue concerns the extent to which changing prices or changing money values should be provided for in formulating income and wealth concepts. A second area of controversy is concerned with the method of incorporating information about price changes into accounting records and financial statements. The third issue is linked with the first argument about income and balance sheet concepts, but is concerned particularly with the role of measurement in accounting and with the determination of current values. It is possible to distinguish three broad approaches to income (and wealth) theory and measurement, corresponding to what might be called a generalized purchasing power approach, a current-value approach and a relative price change approach. The current-value concept of business income may be described by the term current income, defined as the increment in wealth resulting from the current productive activities of the business during a particular period of time, expressed in current prices of the period.