ABSTRACT
This chapter explores the direction of the nineteenth Century accounting error. The accounting error produced by replacement accounting may take any one of several forms. First, replacements were expensed and only bona fide additions were capitalized and also assuming that railroads and utilities in the nineteenth century were expanding their plant and equipment over time, the cumulative capital consumption charges recorded at any point of time would have been less than the costs that might have been computed under a formal system of depreciation accounting. Second, if replacements and other revenue expenditures were capitalized, the magnitude of the understatement would have been larger. Third, if bona fide capital expenditures were expensed, the accounting error for a particular period would have been in the opposite direction. Fourth, in years when replacement occurred, the reported capital consumption charges might have been higher when compared to costs that had been periodically written off.
