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17 download_doc-1.php - A311 (1/20/09) 2.4 Fundamental...

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A311 (1/20/09) 2.4 Fundamental Structure of Acct. Systems ---- Acct. concepts are basically economic concepts , so… Identities, in general. The sign “≡” is called an identity relation and means that a variable in the algebraic expression is defined by the expression . Consider a supply/demand graph: S(P)…Supply Quantity D(P)…Demand Price (‘P’) P*(equilibrium price) Notice supply and demand are equal only at P* so, P* is defined by the identity D(P*) ≡ S(P*) So, D = S by definition of P* (and only at that point) or… “P* makes supply and demand equal.” Economic Identities : Hicks’ (1936) defined how national income is measured: Income t * ≡ Consumption t + Wealth t – Wealth t-1 (1) Net change in wealth (2) (1) Monetary value of resources consumed (2) Monetary value of resources To see more clearly, rearrange as… W t ≡ W t-1 +Income t * - Consumption t But this defines income for a nation . How could we define (net) income for a “firm” (e.g. corporation, partnership, etc.)?
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17 download_doc-1.php - A311 (1/20/09) 2.4 Fundamental...

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