Knowledge that Transforms

Reviews the book "Accountancy As a Career," by Lawrence W. Scudder.

Abstract This article is concerned less with what actually constitutes common accounting practice than with the soundness of the accounting basis upon which such practice rests. Undoubtedly there are those who would prefer the plural-bases in the belief that no one basis can ever explain the whole of accounting practice. Such reasoning, however, appears to place the cart before the horse, as it is tantamount to making current practice though admittedly contradictory and heterogeneous, the acid test of any accounting basis which may be advanced. Furthermore, there is grave danger that a multi basis approach is but a twist of logic by which individual judgments, based on circumstances wholly foreign to pure accountancy, are substituted for accounting control. Actually, it appears literally impossible that multi basis accountancy can ever establish effective control over business reporting in opposition to contradictory non-accounting judgments based on apparently urgent financial expediency, legal prudence, or business policy. This is all the more apparent when it is realized that many of the individual bases within the multi basis of accounting practice were dictated by circumstances from without rather than by controls from within accountancy itself.

Abstract The United States Securities and Exchange Commission in a recent release discusses the application of accounting principles to three issues raised by the financial statements, for 1934 to 1937 inclusive, of the Alleghany Corp. These include the handling of bond discount and expense, the treatment of gains and losses on the sale of investments, and the proper recording of a contract between the Alleghany Corp. and the Chesapeake and Ohio Railway Co. covering the sale of securities by the Alleghany Corp. The Securities and Exchange Commission points out that accounting authority sanctions the amortization of bond discount and expense as an additional element of interest cost on borrowed capital, and the setting up of the unamortized portion on the asset side as a deferred charge. However, in a footnote the Commission warns investors that such an item does not constitute a tangible or realizable value. The Commission illustrated the effect of the improper accounting principles originally used in the three instances under consideration by comparing the uncorrected surplus balances for December 31, 1934, with the amended balances.

Reviews the book "Principles of Business Law," 2nd ed., by Essel R. Dillavou and Charles G. Howard.

Reviews the book "Capital Expansion, Employment, and Economic Stability," by Harold G. Moulton, George W. Edwards, James D. Magee and Cleona Lewis.

Reviews the book "An Introduction to Monetary Theory," by Lester V. Chandler.

Reviews the book "Credit Manual of Commercial Laws, 1940."

Abstract The question whether premiums paid upon the redemption of an entire issue of preferred stock should be charged to earned surplus or capital surplus, has been the subject of difference of opinion among accountants for a long time. Even at present, many members of the accountancy profession seem to take opposite points of view in the matter. This study is based on the reasoning developed from the economic concept of profit and loss in business and from the single entry method of calculating profits. The conclusion, that the premium paid upon the redemption of an entire issue of preferred stock is properly chargeable to earned surplus to the extent that the total premium paid exceeds the amount of premium paid into the issuing corporation on the same issue of preferred stock at the time it was issued. The question under consideration does not deal with the treatment of discount on preferred stock when an entire issue is redeemed at a discount. Accordingly, no comment is made on that phase of the subject.

Reviews the book "Executive Compensation Practices of Retail Companies: 1928-1937," by John C. Baker.

Abstract Accounting by departments of the Federal Government is not often referred to as a model of modern efficiency, and is commonly regarded as dating from the Hamiltonian era. The organization under the Commissioner of Accounts and Deposits of the United States Treasury Department which performs the accounting functions with respect to funds appropriated by the United States Congress for Emergency Relief, however, has demonstrated that it is possible to maintain an accounting system in the Government which is comparable to systems of the largest and most progressive industrial corporations. Expenditures made under the Emergency Relief Appropriation Acts amounted to $11,924,829,853 as of January 31, 1940 and the tremendous job required for detailed accounting and reporting in connection with these disbursements was accomplished with speed, accuracy and efficiency having infinite lessons and applications for the whole Federal accounting system. The Federal Government in adopting this system of accounting for Emergency Relief expenditures has demonstrated that it is possible for it to maintain a system of accounting as efficient as private industry.