ASSETS IN ACCOUNTING: REALITY LOST

Accounting Historians Journal, The, Dec 2003 by Williams, Sarah J

ETYMOLOGY AND DEFINITION OF 'EFFECTS' AND 'PROPERTY'

The use of the words 'effects' and 'property' in the context of what is available to a person or organization to meet debts indicates that these terms were used to represent things that belonged to, or were owned by, a person or organization. Ownership underpins exchangeability and therefore debt paying power. These terms gained ascendancy in the literature at different times.

According to the OJSD [1989, Vol. V, p. 79] the word 'effects' was used in the sense of one's 'goods and chattels', and also more broadly as in the phrase 'to leave no effects'-to leave nothing to one's heirs. In the case of Hogan v. Jackson [1775 1 Cowp.299] Lord Mansfield stated that "real and personal effects are synonymous to substance, which includes everything that can be turned into money". Early French regulation [Code Savary, 1673], aimed at preventing fraudulent bankruptcies, required that merchants prepare regular statements of "effects and debts". In the case of bankruptcy these were used to determine the property available to creditors at the latest statement date.

The word 'property', in its original sense, meant the condition of being owned or belonging to some person or persons, or rights of ownership [OED, 1989, Vol. XII, p. 639]. Around the 17th century property also began to be used in the sense of: "That which one owns; a thing or things belonging to or owned by some person or persons; a possession (usually material), or possessions collectively; (one's) wealth or goods" [ibid.].3 The French Code de Commerce, based on the earlier Savary Bill, required that an inventory of "property and debts" be made yearly [Bulletin des Lois, 1807 cited in Howard, 1932, pp. 95-96]. If these requirements were not met the merchant could be declared bankrupt [Littleton, 1953, p. 84]. As with the earlier bill the emphasis was on exchangeable things or rights.

Property is an interest recognized and protected by law; a right or rights that can be enforced against others:

The right of property is best conceived not as a single right but as a bundle of distinct rights, some or even many of which may be relinquished temporarily without loss of ownership. The kinds of rights which a right of property confers over objects of that right vary according to the nature of the object, but they normally include the rights to possess, use, use up, abuse, lend, let on hire, grant as security, gift, sell and bequeath the object [The Oxford Companion to Law, 1980, p. 1007].4

An owner may surrender some of the rights attached to ownership, such as the right of possession, while retaining others: "Ownership may be held by different persons for different interests, for example when a freehold owner grants a lease" [A Concise Dictionary of Law, 1983, pp. 255-256].5

DEVELOPMENT OF THE 'PROPERTY' NOTION IN ACCOUNTING

A review of the accounting literature, principally of the 18th and 19th centuries, indicated that the word asset was rarely used until the latter part of the 19th century.