Knowledge that Transforms

This article discusses the matching concept in accounting as defined by the 1964 Concepts and Standards Research Study Committee of the American Accounting Association. The committee first considered whether the matching convention is still a useful concept to guide financial reporting practices. Since the fundamental long-term objective of a business entity is to earn a profit, this financial data, to be most meaningful, should include information about profit determinants, including costs and revenues. Only by including these data can the reasons for and the extent of progress of the entity toward its primary objective be disclosed. Following this thought a bit further, one's judgment regarding the effectiveness of a specific effort is improved if it can be related to its contribution toward the recognized objective of the entity. In business operations, costs, defined as resources given up or economic sacrifices made are incurred with the anticipation that they will produce revenue in excess of the outlay. Within this frame of reference, one can then say that costs constitute one measure of business effort, and revenues represent accomplishments coming from those efforts.

Reviews the book "What the Executive Should Know About the Accountant's Statements," by John N. Myer.

The article examines the work of researchers Edgar O. Edwards and Philip W. Bell for the measurement of business income. According to the author, income is the result of a calculation, an inference, and it seems hardly correct to apply the term realized or realizable to it. It is unrealistic to attempt to find the specific impacts of price changes and price-level changes item by item, and then to add all tile pieces together to get a total effect. The complex of assets and obligations is a complex in which changes, in respect of some items, in one direction are automatically accompanied by changes, in respect of other items. It is not therefore reasonable to dissect the effects as if they were the consequences of quite separate decisions. It seems quite sufficient to discover the gross effects. The author disagrees with the argument of Edwards and Bell in so far as it relates to the underlying incidents affecting the investments of firms and the necessity of bringing into account the effects of events other than transactions.

This article discusses the challenges in accounting in European countries. A survey of the literature of recent years indicates that leaders have long recognized that the profession should strive toward greater uniformity in accounting standards throughout the world. National backgrounds have had, and it appears will continue to have, a definite bearing on the development of the profession in different countries. Reporting practices, standards of training, and the status, which the profession has achieved, all reflect the effects of variations in the development of the nation's economy. The formation of the European Economic Community, formalized on March 25, 1957, when the six nations signed the Treaty of Rome, marked the beginning of a powerful economic union. Along with the many far-reaching effects on international trade and economic growth, its development is sure to have very definite effects on the accounting profession both within and beyond its borders. Training requirements for those seeking to enter the profession, as well as for continuing study for those already practicing, must take into consideration these broadening horizons.

The article presents a worksheet related to preparation of funds and cash flow statements. In preparing funds and cash flow statements it is customary for accountants to employ two separate worksheets--one for the funds statement and a second for the cash flow statement. The worksheet described in this article eliminates unnecessary duplication of effort by combining both funds and cash flow worksheets. The purpose of the combined worksheet is to facilitate simultaneous preparation of the statement of sources and applications of funds and the statement of cash flow. The initial two columns of the combined worksheet contain measures of changes in the balances of each asset and equity account that have occurred during the period in question. The acquisition of assets with expected useful lives exceeding one year are displayed separately on the cash flow statement. The acquisition of assets with expected lives of less than one year are shown on the cash basis profit and loss statement. A variety of statements may be prepared from the combined worksheet.

Reviews the book "Alternatives to Present Income Taxes."

Reviews the book "Topics in Business Finance and Accounting," by J.W. Bennett, J. McB. Grant and R.H. Parker.

The article presents the theory of accounts portion of the Uniform Certified Public Accountants Examination held in November 1964. In one of the questions, the students had to identify and discuss defects in the given financial statements with respect to terminology, disclosure and classification. The answer of one of the students discussed the term "reserve for doubtful accounts" which is no longer regarded as desirable. The term "reserve," where used at all, should be employed in connection with appropriations of retained earnings. The student wrote that combining sales and interest income to arrive at total revenue is acceptable where the single-step form of income statement presentation has been adopted; the remainder of the statement fails to follow this form and it would therefore be preferable to set out only the major revenue source at the top of the statement. Another questions asked to discuss the theoretical justification of the allowance method as contrasted with the direct write-off method of accounting for bad debts.

The article reports on recommendations made by the 1964 American Accounting Association Committee on Teacher Development regarding methods and approaches for development of individuals with no teaching experience who aspire to be career accounting instructors. A good teacher should restrict subject matter to be presented in a course to the level of the students' comprehension. At the same time he should stress the relationship of accounting to other fields of business and economics. Accounting teachers must be able to explain accounting. The explanation must be clear, to the point, and adequate. Teachers can identify significant concepts that should be understood and remembered, so that student learning efforts can be channeled to subject-matter areas of major importance. The committee was charged to be primarily concerned with three groups of teachers--doctoral candidates, beginning part-time teachers, and newly-employed staff members with no prior experience in teaching. Doctoral candidates who expect to become teachers should have some carefully supervised teaching experience when pursuing graduate studies.

This article explores the business entity concept of the 1964 Concepts and Standards Research Committee of the American Accounting Association and its significance to accounting. The committee's study of the business entity concept has caused it to depart significantly from the concise statement of the concept contained in the 1957 Revision. The committee believes that in referring to concepts underlying the conventions of accounting the use of the term business is inappropriately restrictive. The committee suggests that, in accounting, the term entity concept be used. In accounting the entity with which one is concerned may be defined as an area of economic interest to a particular individual or group. The boundaries of such an economic entity are identifiable by determining the interested individual or group, and by determining the nature of that individual's or that group's interest. An economic entity encompasses the activities, events, and utilization of resources that affect the interest of the individual or group. Simply stated, the committee advocates a user-oriented approach in defining an entity. That is, accounting reports about entities are developed to meet the needs of particular individuals or groups.