Depreciation and interest;

              Bulletin H A S K I N S & S E L LS 7
THE conclusion which one reaches with
respect to controversial accounting
questions hinges often on a knowledge of
theory. Determination of what constitutes
sound theory often is dependent on a
knowledge of underlying and related sub­jects
like economics.
In economics, interest is that share of
distribution which is imputed to the use
of capital. Profit is that share of distri­bution
which is attributed to enterprise.
The economic factor of production known
as enterprise is a combination of money,
machines, men, and management. The
successful manipulation of these forces is
rewarded by profit.
"Money," as used in the foregoing al­literative
construction, is taken to mean
capital. Therefore, when constituting an
element of production in enterprise, capital
is compensated, if at all, by a share in the
profit; not by interest as when employed
alone. In other words, those who, as pro­prietors,
supply capital to an enterprise
take their compensation in the form of
profit; not interest. They use their capital
to employ machines, men, and manage­ment.
This discussion is leading up to a ques­tion
concerning the propriety, in comput­ing
cost of production, of including therein
both depreciation and interest.
Depreciation is the reduction in the cost
of a physical asset representing capital,
Depreciation and Interest