Page 201 - Accounting Principles (A Business Perspective)

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In Exhibit 27 we summarize the underlying assumptions or concepts. The next section discusses the
measurement process used in accounting.

The measurement process in accounting
Earlier, we defined accounting as "the process of identifying, measuring, and communicating economic

information to permit informed judgments and decisions by the users of the information". In this section, we
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focus on the measurement process of accounting.
Accountants measure a business entity's assets, liabilities, and stockholders' equity and any changes that occur
in them. By assigning the effects of these changes to particular time periods (periodicity), they can find the net
income or net loss of the accounting entity for those periods.
Accountants measure the various assets of a business in different ways. They measure cash at its specified
amount. Chapter 9 explains how they measure claims to cash, such as accounts receivable, at their expected cash
inflows, taking into consideration possible uncollectibles. They measure inventories, prepaid expenses, plant assets,
and intangibles at their historical costs (actual amounts paid). After the acquisition date, they carry some items,

such as inventory, at the lower-of-cost-or-market value. After the acquisition date, they carry plant assets and
intangibles at original cost less accumulated depreciation or amortization. They measure liabilities at the amount of
cash that will be paid or the value of services that will be performed to satisfy the liabilities.
Accountants can easily measure some changes in assets and liabilities, such as the acquisition of an asset on
credit and the payment of a liability. Other changes in assets and liabilities, such as those recorded in adjusting
entries, are more difficult to measure because they often involve estimates and/or calculations. The accountant
must determine when a change has taken place and the amount of the change. These decisions involve matching

revenues and expenses and are guided by the principles discussed next.

13 Ibid., p. 1.

Accounting Principles: A Business Perspective 202 A Global Text