Knowledge that Transforms

Accounting principles have long served as nonlegal precedents for statutory legislation and court decisions on financial and business matters. The legally trained accountant is in a peculiarly strategic position to exercise his influence in hastening this evolutionary process. By so doing he performs a distinctive social service, for many of the inequities referred to earlier will disappear as still more fundamental accounting principles are embodied in formal legislation and legal precedent. The problem of the relations existing between the lawyer and the accountant may be most briefly described by the phrase "cooperation versus competition." The literature of both fields contains voluminous exhortation to the effect that neither accountant nor lawyer should go beyond his professional capabilities. The regular law courses required of all business students provide the accounting student with a certain amount of legal training appropriate to his particular needs. This training is supplemented, of course, in some of the accounting courses, where certain types of legal problems must of necessity be considered.

Reviews the book "The Supply and Control of Money in the United States," by Lauchlin Currie.

Reviews the book "Expenses and Profits of Variety Chains in 1932."

Reviews the book "The International Money Markets," by John T. Madden and Marcus Nadler.

Reviews the book "Business Organization and Combination," by Lewis H. Haney.

The belief that it is the principal if not the sole purpose of depreciation accounting to provide for the financing of the replacement of plant and equipment with units of the same type or capacity when the individual items have to be retired from service is widely accepted and frequently expressed. This opinion is now seldom found in technical accounting publications but it is still frequently present in general business, engineering and legal literature. The early publications on bookkeeping and accounting are largely manuals of technical procedure with little to indicate the underlying philosophy or principles. In 1764 John Smeaton, an English engineer, worked out an elaborate schedule for the operation of a canal which provided for an annual income which would cover the "common annual expenses" and would provide a fund accumulated at compound interest by equal annual installments which would "preserve the work to perpetuity" by financing the replacement of parts of the canal as they wore out, although he indicated in a comment at the end of the schedule that the increased trade which could be expected would take care of these irregular repairs without the creation of such a fund out of income.

The article presents a study of the bookkeeping habits of a sample of every tenth enterpriser in a New England city of 150,000. It was found that only within certain groups did the customary records correspond with the minimum requirements of this standard of adequacy. The great majority of manufacturers and wholesalers were both possessed of records adapted to their needs. Contractors, though in lesser degree, were also apt to be equipped with suitable records while retailers, who comprised the great majority of enterprisers in the city, were predominately inadequate in their accounting equipment. Within all types of business, there has appeared the same tendency. And, inversely, the adequacy of records was comparatively low in the smaller businesses of all types. Unsystematized records or no records were frequent in businesses of $5,000 or less per year, at which point single entry systems expanded rapidly and a few double entry systems appeared. At $40,000 to $50,000 income a year double entry systems became and remained in the majority of types of records. A considerable variety was found, however, between different types of business.

Reviews the book "Legal Responsibilities and Rights of Public Accountants," by Wiley Daniel Rich.

It has been frequently contended that there is no such thing as prepaid interest. Cash is designated by amount only and any cash to the specified amount is as proper for business transactions as any other cash of the same amount. This is not true of other tangible assets. Usually Rent Expense would be debited and Cash credited but in this situation a building is being borrowed and its use is being paid for by what is called rent. However, when money is borrowed an entry is made debiting Cash and crediting Notes Payable. The fact that cash is fungible, that any cash the same in amount may be returned at loan maturity and the fact that buildings are not fangible and may be returned only in exactly the same properties, cloud the issue but do not change it. When payment in kind is indicated it refers to the payment for the use of an asset in the same form as the asset used, as the payment for money borrowed with money, or the payment of rent for a building used in the form of another building. If rent has been paid in advance and the prepaid rent account has been debited and if the lease is broken by agreement, the rent may be reduced as easily as the interest may. This is no more consistent than the other arguments.

Accounting data and procedures impinge upon the National Reform Association (N.R.A.) codes and their administration at a number of points. There is for example, the matter of keeping the books and auditing the accounts of Code Authorities. These bodies, whose precise legal status is still a matter of considerable uncertainty, are permitted to collect in a compulsory manner funds from the members of industries under their guidance, and to spend those funds on the basis of budgets approved by the N.R.A. officials in Washington. Accounting data have been extremely useful in the making and amending of codes. The best example of such aid is the ascertainment of the effect of proposed wage and hour provisions on costs. The N.R.A. appears to the author as a challenge to industrial accounting practitioners to bring into play talents which will begin to act because of a recognition that all business transactions are in reality cost matters finding expression not only in the processes of making goods and marketing goods but also in the processes of capital investment and economic readjustments.