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Measuring business profits: economists versus accountants

Author

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  • Hasan, Zubair

Abstract

This paper discusses a topic rarely addressed in the literature on profit theory over the decades. In empirical work on subjects like growth, efficiency and welfare, business profits at times appear as one of the variables. Such studies perforce use profit data reported in the business accounting records. This data is invariably at variance in important ways with the economists’ theoretical view of profit. The cause of divergence is the cosmopolitan forward looking ex ante view of entrepreneurism the economists take as opposed to the narrow conservative ex post focus of the accountants needed to protect the interest of business proprietors who pay them for the job. There is a need to narrow this gap to improve the results of empirical explorations. This paper identifies some areas of divergence like maintenance of capital, evaluation of inventory and the impact of conservatism. It concludes that the economists are obliged more to take cognizance of accounting constraints than the other way round.

Suggested Citation

  • Hasan, Zubair, 2016. "Measuring business profits: economists versus accountants," MPRA Paper 75505, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:75505
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    More about this item

    Keywords

    Business profits; Efficiency; capital maintenance; inventory evaluation; Conservatism;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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