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Accounting vs Economic Income

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Accounting vs Economic Income

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  • November 2011
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Accounting vs. Economic Income

Abstract
This paper explores further into two different peer reviewed articles, and one chapter of an accounting book. These articles express the dynamics of accounting and its perspectives. It also equates for how they are determined and the usefulness of the income based on changes in the value of credits and liabilities. In addition, it expresses the need for education in both forms of income, and specific training required to truly understand the differences. Keywords:Accounting, Investments, Income, Assets, Liabilities

Accounting versus Economic Income
Introduction
Accounting income and economic income may sound the same, but they vary greatly. Knowing the correct terminology is the mark of a true professional. (Kida & Hicks, 1982) There are several definitions and several different ways to approach the topic, but altogether they establish a better understanding. In accounting income and economic income there is more to them, than just definitions. There should be a clear understanding and precise knowledge of the two. Summary

Economic income represents an increase in the command over goods and services, or as economists refer to it as a measurement of “better-offness” (Walther, 2010). The Hicks approach addresses economic income is a change in wealth. This is simplified by a consumption of withdrawals by owners and savings, which constitute changes in an owner’s wealth. (Lamberg, 2002) Both interpretations of the economic income are very similar, and rely on wealth. “In economics, value and income concepts are thought of in terms of theoretical concepts.” (Kida & Hicks, 1982) Accounting income can be defined per word. Where “accounting measurements tend to be based on historical cost determined by reference to an exchange transaction with another party (such as a purchase or sale) and income represents "revenues" minus "expenses" as determined by reference to those transactions or events."...

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