Knowledge that Transforms

Abstract Although a revised statement of concepts and standards was published in 1948, a Committee on Accounting Concepts and Standards was appointed early in 1949. The appointment of a new committee so soon after the publication of a revision did not indicate an intention either to rewrite the 1948 statement immediately or to adopt a policy of introducing new models each year. The purpose clearly was to institute a continuous program of study and research, which it was felt might be more effective than the more or less spasmodic efforts of the past. The members of this committee favor such a program. Methods by which it can be made effective, however, have not yet been fully worked out. The committee has faced and still faces a dilemma arising out of the fact that it is not expected either to publish a revised statement in 1949 or to continue as a committee with the same membership until a revised statement is published. During the two-day meetings of this Committee, the discussion ranged over the whole field of accounting and revealed surprisingly broad areas of agreement, although the usual difficulties were met in phrasing statements, which would secure unanimous approval.

Abstract Reviews the book "Reflections of a Revenuer," by Aubrey R. Marrs.

Abstract According to the author one will note that he avoided many current professional auditing problems. There are quite a number of these that are interesting which may be mentioned even though he had elected not to discuss them. The teaching of accounting and auditing has come a very long way since the author studied the two subjects in a course in commerce in his university days. In his case, there is a span of forty years of contact with the teaching of accounting. He thinks the teaching has more than kept pace with the development of the profession, and it has contributed immeasurably to the success of the profession. The development of the collegiate courses in accounting and auditing is not in the hands of the practical practicing accountants, but properly it is dependent upon the wisdom of the professional educators. In his opinion, the profession can have complete confidence that the teaching of accounting will keep pace with the needs of the profession. According to the author the profession is not satisfied that it has reached proper standards of disclosure. At the present time, the desires of the public for more information clash with the desires of management to disclose no information that will be competitively harmful or, by increasing the problems of management, are harmful to the owners of the business.

Abstract Reviews the book "Basic Accounting," by Ralph L. Boyd and Robert I. Dickey.

Abstract Reviews the book "Mine Accounting and Financial Administration," by Frank Willcox.

Abstract Accounting for reserves has received considerable authoritative comment in the last few years. The Reserve for Sinking Fund is an outstanding example of a reserve account requiring further discussion in order to make its true nature and effect clear. Viewing the account under unusual circumstances will permit a fresh approach to its problems; it is therefore proposed to consider first the Reserve for Sinking Fund in the records of a governmental utility. The equitable aim of a governmentally owned utility should be to have its rates cover the costs of rendering service to present users of its facilities. Operation at a profit with the profits being turned over to the municipal authorities for general use can only be justified by the assumption that the amount of utility service consumed is a reasonable basis for allocation of part of the burden of taxes. The problem of equity also extends to the charges assessed against successive generations of users of utility service. To build up a large surplus and retain it within the utility indicates that present rate payers are making it possible for future users of the service to pay less than the full cost of rendering that service to them.

Abstract Reviews the book "Principles of Accounting," 2ed., by John R. Bangs and George R. Hanselman.

Abstract During periods of comparatively stable prices, it is possible that the advantages of the standard pricing plan for materials, in terms of ease of costing, would outweigh the loss of a more current cost obtainable by a replacement cost method of pricing. However, if standard costs are utilized during a year of sharply rising or sharply declining prices, cost of materials used and sales will not be stated in terms of dollars of equivalent purchasing power. Cost, from a current cost standpoint, may be at variance with standard costs. It is probable that the advantage of having the replacement cost of goods at standard quantity usage both in the finished goods account and the cost of sales account would transcend the loss of keeping these accounts completely at standard cost. From the point of view of comparing cost of sales and profits, either on a product or period basis, ratios of cost to sales and profits to sales would be more readily comparable, since costs and sales will be expressed approximately in terms of dollars of the same purchasing power.

Abstract Reviews two books "Controllership in Modern Management," edited by Thornton F. Bradshaw and Charles C. Hull.

Abstract This paper is written in criticism of the usual textbook treatment of the amortization of prepaid leaseholds. The usual treatment violates theory in atleast three aspects: (1) It violates the accounting convention by recording book interest on costs incurred. (2) It mismatches costs with revenue. (3) It results in an improper valuation of the prepaid lease for balance sheet purposes. The accounting convention that no interest should be considered earned and recorded as such on the equipment would seem to apply to the prepaid lease as well. The amount of any cost incurred is, fundamentally, the present value of future service. It is sometimes argued that since interest was a consideration in determining the amount to be prepaid, that interest should therefore be considered earned and recorded on the prepayment. It is also true that interest is or should be a consideration in the determination whether one should purchase or lease. It is further true that interest is a consideration in the determination of whether one should engage his money in a business. But, after the determination is made and the cost incurred for assets of a business, it does not follow that interest should be a consideration to be recorded in the books of account.