An Axiomatic Theory of Accounting Measurement—Part II

Abstract

Willett (1987) described a transactions based theory of funds accounting. This paper extends the theory to explain asset and profit measurement. Eight axioms are listed which, when interpreted in the context of cost structures, are sufficient to justify the logic underlying the generation of accounting numbers in financial statements. Although the theory is expressed using deterministic concepts, one of its implications is that many derived accounting measurements used in practice (e.g. income calculations) are of an inherently probabilistic nature. The theory identifies the main stochastic variables which determine the statistical characteristics of such accounting numbers.

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