Over many years various accounting

Over many years various accounting authorities have grappled with the problem of
appropriate recognition and classification of income and expenditure items in the
preparation of financial statements. One obvious case in point is the distinction
between the ordinary revenue and capital gain nature of transactions; another is the
inter-period allocation of expenditure. To a large extent, accounting attempts to
resolve these issues by relying upon the statement preparer‟s subjective judgments.
That approach has implications for other disciplines, such as taxation. Perpetuation
of accounting‟s imprecision is attributable to the inadequacy of the criteria used by
prevailing accounting statements and conventions. This paper demonstrates that the
market place itself can resolve these concerns. In doing so, it renders the accounting
doctrine of accrual superfluous. The paper also develops and proves the direct
relationship between the traditional Schanz-Haig-Simons definition of income and the
present value formula, which is the foundation of the market approach to classifying
transactions correctly