FOREST STATICS BALANCE SHEET PROFITS IOI 



Such results evidently do not fully accomplish one important 

 purpose of a balance sheet, which is to reveal to the owner the 

 true financial status of his investment. Two elements of eco- 

 nomic importance have been neglected, which entirely alter this 

 status. The expectation value, not the cost of the assets, is 

 the true measure of the debit entries, while the profits finally 

 credited are not revealed in their true relation to costs unless the 

 time required to earn these profits is given proper weight in 

 the balance by exhibiting the interest at p per cent which should 

 have been earned on the invested capital during the period. 



A statement which includes these two factors, expectation 

 value and interest on costs, may be termed the "economic fore- 

 cast." Revaluation of assets to coincide with present value 

 rather than cost is practiced in commercial accounting when 

 circumstances seem to justify it ( 73). But the addition of 

 unearned interest as a cost is universally excluded in specific 

 accounts. The economic forecast would include such interest 

 on costs, for in no other way can the owner inform himself of 

 the relative value of the profits derived from income, or whether 

 there is any enterpriser's gain. The apparently enormous final 

 profits shown by the specific balance sheet may, when tested by 

 this economic comparison, be revealed as equivalent to less than 

 p per cent, which is no profit at all as measured by the standard 

 of enterpriser's gain (42). 



In this economic statement the proprietary side ordinarily 

 shown as credit is excluded altogether, and the costs are shifted 

 to the right-hand column in order to compare them with actual 

 value ( 73), and reveal potential profit or loss. The statement 

 formulated in this manner is thus purely impersonal, and does 

 not distinguish between borrowed and personal capital. It is 

 similar to that which would be formed by comparing a cost 

 account for manufactured articles, as credit, with the sale value 

 of the article as debit. But in the case of productive property, 

 this comparison must be made far in advance of the receipt of 

 final or total income and is a balancing of cost against expecta- 

 tion value for the entire enterprise. 



That the economic statement will show entirely different 



