As will be seen, the expenditures are measured in accordance with the historical cost convention, and they are recorded on the accrual basis. The revenues relate to the financial flows generated by the outputs. As will be seen, the standard conventions apply also in measuring the revenues. The term total income is used this time rather than the total profit in order to indicate the fact that also a total loss is conceivable in case the whole business venture backfires. Note that this will definitely not mean a suggestion for a cash-flow accounting model.
Accrual basis is used.
The reader may find it helpful to consult Figure 4 in reading the text of this chapter. I use here the word profit instead of income. This assertion is supported by any study of bankruptcy. This argument was brought to my attention by Professor Veikko Jaaskelainen of the Helsinki School of Economics. In the U.S. accounting terminology it is often said that the expenditure is capitalized.