Knowledge that Transforms

Reviews the book "Social Science Research on Business Product and Potential," by Robert A. Dahl, Mason Haire and Paul F. Lazarsfeld.

In recent years it has become increasingly evident that many managerial problems could be best handled by an integrated application of accounting and statistical knowledge. The actual integration of these two disciplines in the business world has been progressively increasing. Applications of statistical and sampling techniques have been made to a number of accounting problems. In the area of accounts receivable, applications have been made to the confirmation of receivables and to the aging of receivables. In contrast one of the first steps required in making a statistical application is the specification of the desired precision of the estimate and the level of reliability needed. Precision and reliability are the basis for the application of statistical sampling and these quantities must be stated by the accountant desiring the information. In another type of application statistical sampling was used in lieu of a cost accounting system. A large number of products were manufactured with the same machinery and same individuals during the day. A conventional cost accounting system would have been prohibitively expensive.

The article presents problems that were prepared by the Board of Examiners of the American Institute of Certified Public Accountants (C.P.A.) and were presented as the first half of the C.P.A. examination in accounting practice on May 18, 1960. One of the questions asked was regarding Houston Factors Inc. The company was incorporated on December 31, 1959. The capital stock of the company consists of 100,000 shares of $10 par value each, all of which was paid in at par. The company was organized for the purpose of factoring the accounts receivable of various businesses requiring this service. The paper asks to prepare a balance sheet and an income statement for Houston Factors Inc. as at March 31, 1960. The Rickard Co.'s fiscal year ended March 31, 1960. Your examination the preceding year disclosed that the internal control was weak. The staff and organization was unchanged. The office manager was unable to reconcile the bank statements at March 31st, and opened an account called "Exchange" for $170 in order to balance his preliminary trial balance. The paper asks to reconcile both bank balances to the adjusted cash balances as of March 31, 1960.

Reviews the book "Wormser's Guide to Estate Planning," by Rene A. Wormser.

The article focuses on the use of slide-lecture technique in the teaching of auditing. The slide rule technique involves the use of a complete series of especially prepared slides. The majority of the slides prepared were reproductions of methods of analyzing the various balance sheet and operating accounts and other illustrations not usually found in text books such as acceptable and unacceptable endorsements, federal income tax spread sheets, adjusting journal entries-net effect schedule. The slides on cash continue with duplicate deposit slips, petty cash count, petty cash adjusting journal entries, examples of petty cash vouchers, petty cash reimbursement voucher, internal control comments and charts, audit memo, and, finally, the completed lead schedule. The sequences of slides were assembled in special slide trays or magazines. They were projected by a remote-controlled 500 watt slide projector. Auxiliary equipment necessary consisted of a forty-foot remote-control cord and a ten by ten foot wall screen in each classroom.

The article explores the concepts of financial position held by various groups interested in a business and attempts to determine whether or not the balance sheet as presently constituted can serve these different groups. Creditors in general view the information given in the balance sheet concerning assets, liabilities, and equity from a different point of view than that of management or owners. Therefore, a balance sheet of value to creditors must incorporate information that will allow them to judge a debtor's financial position and that will thereby, meet the creditors' concept of financial position. Within the owners' group, as within tile creditors' group, there are several concepts of financial position to be developed the relationship of the owner to the enterprise has an important bearing upon the owners' interpretation of financial data. Because of the large number of management groups, each with special interests, no uniform concept of financial position can be developed, nor can these groups be classified for this purpose under one or two simple headings. Each group will necessarily have its own concept of financial management.

Much attention has recently been given by the public press to the developments in the recent Government anti-trust suit against the DuPont Company and General Motors Corporation. While students of accounting are generally made quite aware of another interesting distinction in the field of corporate distributions, that of the stock dividend versus the stock split, little if any attention is given in accounting literature to their "second cousins," the subjects of this paper. In the stock dividend and the stock split, one is dealing with the problems of increasing the number of outstanding shares of a corporation's own stock. The term "dividend in kind" actually refers to any distribution by a corporation, out of earnings or retained income, of an asset other than money. The income tax treatment of such property dividends in stock, incidentally, presents a seeming paradox which is interesting from an accounting standpoint. When a corporation distributes property as a dividend in kind, its surplus is decreased by an amount equal to the cost of the property.

The purpose of the article is to compare the use of management accounting techniques in Australia with their use in the U.S. and Canada. It has been suggested that Australian industry uses management accounting techniques to a lesser extent than American industry. Two research projects conducted recently throw light on these opinions. The first examined the management planning and control practices of a selected group of 424 American and Canadian companies. The second project, commenced in 1957, examined financial organization and control practices in a selected group of 157 Australian companies. The two surveys seem to support the belief, however, that through the joint efforts of professional management and accounting associations over the last ten years, the knowledge and use of management accounting techniques have been increased. But there is still a need for a wider and more effective application of management accounting techniques. If management accounting in Australia is to make its full contribution to increasing the nation's productivity, it may be concluded that educational and professional exchanges with the U.S. and Canada should continue in the future as they have in the past.

Each of the eleven new statutes uses the terms "stated capital" and "earned surplus"; ten use the term "capital surplus" but the District of Columbia statute uses "paid-in surplus." Nine of the new statutes prohibit the sale of par value shares for less than par. Virginia and Maryland permit sale at less than par but without any contingent "discount liability." Although none of the eleven statutes requires a minimum consideration for no par value shares, ten statutes permit only that consideration received for no par value shares in excess of liquidation preferences be designated as capital surplus and six of these have an additional limitation that not more than 25 per cent of the consideration for no par value shares may be designated as capital surplus. One, the North Carolina statute, does not refer to liquidation preferences in connection with designations of capital surplus. Four statutes have not adopted the 25 per cent rule and Virginia has made it optional. All the statutes permit cash dividends on any class of stock to be declared "out of" earned surplus. All the statutes permit cash dividends on preferred stock to be declared "out of" capital surplus, some of these only under certain conditions, e.g., in the absence of earned surplus (six statutes). Four statutes permit cash dividends on common stock to be declared "out of" capital surplus, but two of these have conditions attached to the privilege. Only the North Carolina statute permits dividends to be declared "out of" current earnings in the absence of earned surplus. Each of the new statutes permits stock dividends to be declared "out of" either earned or capital surplus; two statutes permit stock dividends "out of" unrealized appreciation; nine statutes permit treasury shares to be issued as stock dividends although one of these, North Carolina, does not permit them to be called stock dividends. Nine of the statutes have provisions permitting the transfer of earned surplus to capital surplus.

To relate cost and sales we must value inventory changes at marginal cost. The accounting equation, using this concept, is based on two estimates: (a) volume of inventory at successive points of time (b) marginal cost of the physical inventory change. Errors in these two estimates are relatively more important as the period is shortened. We can eliminate the necessity of making these estimates by introducing purchases and production into the regression calculations as independent variables. For certain purposes it is desirable to convert the equation into a function expressing cost as dependent on sales (or any one of the independent variables). This requires coefficients of physical relationship among the independent variables, purchases, production, and sales. These coefficients may be estimated directly, from long term averages, or from first differences derived from data on input-output quantities in successive periods.