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The reliance on economic concepts, most notably economic income, for the measurement of profit in financial accounting is misplaced. This paper explores the concept of economic income, contrasting it with the concept of profit in the conventional accounting model. The concept of individual economic income cannot be used for measurement of profit for a past period as the concept is based on the capitalisation of expectations and excludes "separate but correlated" concepts of profit and capital needed for capital maintenance. The relationship between accounting profit and economic income AbstractThe ascendancy of economic concepts, most notably economic income, and reliance on them for the measurement of profit in financial accounting is misplaced. Schipper and Vincent (2003) and Justice Owen of the HIH Royal Commission provide recent examples of the dominance of economic ideas. This paper explores the concept of economic income, contrasting it with the concept of profit of the conventional accounting model.As Kaldor (1955) has shown, the Hicksian concept of individual economic income cannot be used for measurement of profit for a past period as the concept is based on the capitalisation of expectations, and excludes "separate but correlated" concepts of profit and capital, needed for capital maintenance. The Alexander/Solomons (1962) concept of variable income allowing for uncertainty is unable to escape the limitations of capitalised expectations. Attempts to develop support for a concept of current income from the economic model are also found wanting.Acceptance of these conclusions has implications for identifying relevant criteria in conceptual frameworks to guide the setting of accounting standards.

The motivation for this paper is to evaluate the legacy of John B. Canning to financial accounting, particularly regarding his attempt to identify the qualitative, empirical property underlying the accounting elements for measurement of periodic profit. Canning's adaptation of Fisher's (1906) concept of individual real income to deduce enterprise earnings together with the underlying concept of services is explored for its impact on profit measurement. Fisher (1930b), in his review of Canning's book, provides a clear description of profit as an 'adjusted cash flow'. In endorsing this approach Canning (1933) also, in effect, endorses much to be found in conventional accounts. Canning's (1929a) break with economic value was announced in a paper which appeared before publication of his book, but which was written after the book was completed. Canning's experience casts light on the current debate on the conceptual framework definitions, and measurement in financial reporting. The interest and excitement his work continues to generate is an enduring contribution to accounting.

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By recognising the dual purposes of financial accounting, and developing distinct theories to guide the preparation of financial reports, the apparent internal contradictions in accounting theory can be resolved. Property rights and measurement theory provide the basis for explaining transaction-based profit measurement and funds commitment, and for a statement of wealth measured using market prices. Property rights are recognised in The New Institutional Economics. Going beyond accepted accounting conventions, property rights provide the qualitative, empirical property giving meaning to accounting practice for profit measurement through the 1940s to 1960s. Examples of profit and of wealth measurement are included. Abstract: By recognising the dual purposes of financial accounting, and developing distinct theories to guide the preparation of financial reports, the apparent internal contradictions in accounting theory can be resolved. Property rights and measurement theory provide the basis for explaining transaction-based profit measurement and funds commitment, and for a statement of wealth measured using market prices. Property rights are recognised in The New Institutional Economics. Going beyond accepted accounting conventions, property rights provide the qualitative, empirical property giving meaning to accounting practice for profit measurement through the 1940s to 1960s. Examples of profit and of wealth measurement are included.