Knowledge that Transforms

In this article, the emphasis will be on the pioneers of the recent past and of the future rather than on the great names of previous centuries whose contributions to accounting methods and thought have been so well covered in English. The article also points to three ways-not new ways, but ways not yet fully accepted-in which the business world can be helped to see more clearly its position and its responsibilities. First, business executives and the public should be disabused of the idea that the money values in a balance sheet are a measure of productive capacity. Second, the article suggests that we must search for and devise within our own field ways of convincing the business world that the money profit figure is not in itself a measure of successful operation. We have seen recently a great development resulting from the combined efforts of engineers and accountants in the field of cost accounting. It is suggested that as careful thought applied to the field of human engineering would bring as great a development, and charged that this is a field in which we may not wait for the demand to arise before we try to give the service.

An examination of the statements of condition published by twenty-five representative Chicago banks as of December 31, 1946 reveals the continued publication of condensed statements with stereotyped arrangement and terminology which compare most unfavorably with the published financial reports of industrial and commercial concerns. The arrangement and terminology of these statements are undoubtedly influenced materially by the current regulations, instructions, and uniform forms prescribed by the U.S. Comptroller of the Currency. But, to explain the paucity of data, one must probably look to the influence of heritage, traditions, and customs on the current practices of the modern commercial bank. Since the qualitative and quantitative features of the reported financial data correspond closely to those found in the pocket-sized folder usually distributed to depositors, the published statements may be judged fairly in the light of their services to the interests of the depositors as well as the stockholders.

The analysis of costs for use in equipment replacement decisions is not a new topic, for much has been said and written on the subject. However, one who reads this literature finds advocated a confusing diversity of formulas and methods for computing and comparing costs. The objective of this article is therefore to examine these differences and to develop an approach to the problem which will be logically sound and also workable in the solution of practical business problems. It will be limited to methods of determining and comparing costs for use in deciding whether or not to replace an existing piece or type of equipment with a new or different machine capable of performing the same function. The first step in developing a method for analysis of costs to be used in decisions as to replacement of equipment must be a clear statement of the principle underlying the comparison of alternatives in the selection of equipment. From this it is possible to determine what facts are needed and with this in mind one can proceed to collect the data. A cost comparison can then be made with assurance that the results will be reliable within the limits of the precision with which the cost figures have been measured. It will also be found that this approach can simplify a problem the solution to which has often been made complex and confusing.

The article focuses on the group method of depreciation in accounting. The vast amount of accounting literature written on the subject of depreciation fails to include but a bare mention of the group method of depreciation. This is quite unfortunate in view of the wide use of the procedure. The writer became interested in the group method in early 1941 and found it to be widely used and accepted in the petroleum industry. The regulatory commissions seem to have pioneered in the study of the requirements of the group method of depreciation. In the early 1920's the Interstate Commerce Commission began a study of depreciation rates and methods. During this period the Commission discussed interest and straight-line methods of computing the depreciation charge and recommended the straight-line method because it thought that this method gave a more accurate statement of the profit and loss. The unit plan of depreciation seems to have been the preference of the Commission until about 1933, when it began specifying the use of the group plan.

Reviews the book "Business Budgeting and Control," by J. Brooks Heckert.

The fact that the origin of double-entry bookkeeping remains shrouded in mystery does not detract from the merits of the valuable researches into the early history of accounting made by several scholars, as of July 1947. The search provides an interesting pursuit for the historian even if he knows that the spoor will disappear, sooner or later, in a confused tangle of speculation and conjecture, with the scent of red herring always present. The article deals with one of the possible trails to the unknown origin, or rather, a possible trail provides a tenuous central theme about which some observations are presented. It seems as if, before double-entry appeared, accounting records of proprietorships, whether single or multiple, were confined to records of dealings involving the granting or receiving of credit. The records assumed various forms and often the books of account were mere scraps of paper. Sometimes there were entries in diaries or journals, where the settlement of debts was indicated by the effective though untidy method of deletion. Sometimes the entries in the journal were reclassified into accounts, the beginnings of the modern ledger.