Reviews two books. "Fundamentals of Corporation Finance," by Joseph F. Bradley; "Introduction to Business Finance," by Bion B. Howard and Miller Upton.
Social Accounts are similar to every accounting system in that their main purpose is the systematic organization of information. The accounts may have many purposes. The different uses may require quite differently organized accounts. The inability to portray the complexity of the real world in a few summary numbers may force the accountant to forego a set of accounts which conforms to the conceptual scheme initially devised and instead make only approximations. Both of these difficulties are present in the social accounts and seriously affect the usefulness of the accounts. The entire field of social accounting has shifted tremendously in the years since the pioneering estimates of the National Bureau of Economic Research in the first decade of this century. From an initial interest in estimating the national income which was an index of the, condition of the economic system, the social accountants have shifted their attention to the ambitious task of describing in detail the structure of the economy. The purposes for which the abstracted accounting system were to be used have broadened, and, though there have been some changes in the accounts, the original motivation still dominates. As a result, the accounts misrepresent the world to those who wish to use them for these additional purposes.
The article highlights that books of original entry, in the form of journals, express the two-fold effect of each transaction through debit and credit accounts presented as complementaries. The books of final entry, in the form of ledgers, then divorce the complementary elements by classifying the debits and credits by account titles as separate units. However, considerable benefit can be derived by management and auditors if the complementary elements set forth in the journals are retained in the ledger. This objective is accomplished simply by changing the ruling of the accounts in the general ledger. The single debit and credit columns currently in use will be replaced by a series of debit and credit columns to accommodate each related complementary account. The columns on the debit side will show the credit complementary accounts common to the account in question. The columns on the credit side will show the related debit complementary accounts. Since the number of complementary accounts pertaining to a particular account vane, two sizes of account sheets can be used. A single page-spread will suffice for accounts with few complementaries. A two-page-spread will be used for accounts with numerous complementaries.
"Accounting," says professor W.A. Paton, "is plagued with fetishes and sacred cows. It is high time that homage be shifted from these to the primary objective furnishing owners and managers with essential economic data." The sacred cow in accounting is a belief or doctrine which is accepted without critical analysis and which, like the Indian cow, it is a sacrilege to destroy. It is based, not on logic or on any necessity of record keeping or financial presentation, but merely on tradition or blind acceptance of what has been. Unlike the universal (among Hindus) acceptance of the doctrine of bovine sacredness, no accounting sacred cow is the subject of universal acceptance among accountants. Each accountant has his own collection of such irrational beliefs. A sacred cow which leads us all astray from time to time may be designated as the belief in objectivity as an infallible accounting guide. In the need of distribution cost analysis are found some of the most perplexing of accounting situations. Conservatism causes accountants to recognize unrealized losses, but never unrealized profits.
There are two major problems in connection with accounting for corporate dividends. The first of these involves the source of the dividend; the second concerns the form or type of dividend. The American Institute of Accountants has held that the credit item in an upward revaluation should be regarded as part of the capital structure, not available for transfer to retained earnings; the item should be frozen until disposed of, if at all, by means of a stock dividend. In some circumstances, dividends may even be paid out of actual capital. This is legally permissible in the cases of wasting asset dividends, dividends out of reduction surplus or dividends declared during construction. Dividends are most commonly paid in cash, although they also may be paid in property, the company's own securities, securities of other companies held by it as investments or scrip. In other words, the dividend may represent a distribution of corporate assets, the establishment of a corporate liability or merely a transfer between proprietorship accounts. Accounting for the stock dividend is in accordance with the method of allocation determined upon.
Accounting lectures can be made more understandable and more interesting to the students by the use of suitable "props" illustrating practical accounting situations. Students often have difficulty understanding the operation of a petty cash fund and visualizing the petty cash count. After the subject has been studied in the text and discussed in class, it creates immediate interest among the students for the instructor to produce a petty cash box and ask one of them to audit the fund in the presence of its custodian. The student should be instructed to behave exactly as if he were in a client's office. The audience should be cautioned not to offer suggestions during the course of the count. All should be given a chance to view and examine the contents of the box so that they may comment on the auditor's findings after he has finished. This experience will impress the petty cash count on the minds of the students as no amount of talking about it can do. Other "props" can frequently be obtained to enliven the presentation of ace counting procedures. Worthless securities may be used by students in making a securities count. The handling of actual stocks and bonds gives the student a sense of seriousness and will command his attention much more fully than a textbook problem can do.
National income estimations are in large part based upon business accounting data. Nevertheless, accounting data are in several instances modified in an attempt to obtain greater completeness and uniformity in the measurement of national income and product. The purpose of this paper is to consider some of the more important modifications of accounting data, both with regard to their quantitative significance in national-income estimation and with regard to the validity of the assumption that modifications of accounting data are necessary or desirable. The most important of the modifications of business-accounting data are (1) the inventory-valuation adjustment, applied to business profits and production data, and (2) the so-called imputations, or items of production and income in kind. Included in the latter category are imputations made in measuring national output for (a) wages and salaries paid in kind, (b) the rental value of owner-occupied houses, (c) the value of food and fuel produced and consumed on farms, and (d) nonmonetary income and product flows arising in connection with financial intermediaries.