Knowledge that Transforms

The article presents information about professional examinations related to accounting. The following problems were presented as the second half of the November 1946, Certified Public Accountants examination prepared by the Board of Examiners of the American Institute of Accountants. The candidates were required to solve both problems in four and a half hours. The weights assigned were: problem 1, 35 points; problem 2, 15 points. A suggested time schedule was given which was as follows: Problem 1: 120 minutes and Problem 2: 60 minutes. Problem No. 1 was as follows: One of the problems were regarding a retail store which was destroyed by fire on March 20, 1946. Only few items were salvaged.

In this article, fundamental propositions concerning the functions of accounting in respect to cost, revenue realization, income, and capital are set forth briefly. These are followed by explanations and applications the list of which could be considerably expanded. The primary effort has been to bring out those points which are of the broadest significance or which have been the object of recent attention. In the corporate field the most important use of accounting lies in the preparation of statements of financial position and of operating results. So many vital decisions of business and government depend on the interpretation of such statements that they have come to be of prime economic and social significance. The subject may be approached by considering the uncertainties of corporate accounting practice which sometimes vitiate comparisons of published financial statements of different corporate enterprises, and even comparisons of the financial statements of the same enterprise for successive years. In some instances business managements and accountants have permitted themselves such freedom of action that published statements have been difficult of interpretation without extensive supplemental information. To avoid these difficulties every corporate statement should be based on accounting principles which are sufficiently uniform, objective, and well understood to justify opinions as to the condition and progress of the business enterprise behind it.

Beginning instructors are usually assigned to the elementary course in order to obtain their experience. The large volume of students is also found at this level. The intermediate course presents a somewhat similar problem, although it is less acute. Generally, the courses above the intermediate level are in the hands of experienced instructors. The writer believes that all the ability and skills an instructor can command are required at the first level. If the student fails to learn the fundamentals well, difficulties in more advanced courses may be due to the structural weakness of the introductory background rather than to the advanced course per se. The problems of the beginning instructor are increased not only by the range of interest and ability to grasp the subject but also by sheer numbers. In advanced courses, however, there is the advantage of selection. The suggestions offered here are primarily to help the beginner. They are not intended to be complete. Also they are confined to the elementary course, although they may be applied also to the more advanced classes.

The verbs used in the literature of auditing tell what auditors do, and therefore take on technical significance. An analytical study of word usage, by detecting differing shades of word meaning, could therefore be expected to direct attention to differing types of audit action. In a sample of auditing literature amounting to approximately 1,720 pages, about 75 verbs were used 20 times or more for a total of over 5,000 uses. About 400 other verbs were used less than 20 times each for a total of 1,500 uses. The most notable feature of this quantitative analysis is the fact that within a large vocabulary of audit verbs there is a high concentration upon a few words. Seventeen verbs used 30 to 99 times are: note, accept, scrutinize, reconcile, disclose, count, give, substantiate, see, account for, report, request, state, confirm, analyze, satisfy, audit. Fifteen verbs used 30 to 49 times are: provide, insist, study, prove, foot, establish, discover, include, trace, adjust, show, detect, value, take, make.

Reviews the book "Professional Ethics of Public Accounting," by John L. Carey.

The modern collegiate school of business is in a unique position to meet the education requirements of accountants that will combine cultural and technical training, for it is so constituted as to maintain the proper balance between the liberal arts tradition and the specific requirements of preparation for a professional career in any of the various phases of business activity. In terms of types of curriculum structure for such a school, the paper argues for the "diagonal" plan, wherein the student begins his studies with a program containing a preponderance of subjects in the liberal arts division and a sprinkling of business subjects. As he continues through his collegiate career the trend is reversed so that, in his senior year, the student is pursuing a heavy concentration in his specialization group together with a light general elective program. The general advantages of this plan are (1) the problem of articulation between high school and college is thereby minimized; (2) the student is introduced to business in broad terms through a general survey of business structure, organization, procedures, and laws-all of which are basically related to the accounting process; (3) the general business subjects are appropriately introduced before specialization is begun; and (4) the choice of a specialty is deferred until such a time as the student has surveyed generally the various fields of business endeavor. From the specific viewpoint of education for public accountancy, this form of curriculum design (i.e., the "diagonal" type) permits the accountancy student to defer his decision to prepare for this particular phase of the field until he has virtually completed his specialization group and has been "exposed" to the various areas of possible professional interest in the general field of accountancy.

Reviews two books by Sidney G. Winter. "C.P.A. Review"; "C.P.A. Review. Answers to Questions and Solutions to Problems."

In this article the author discusses notable strides in the field of accounting for public funds during the past fifteen years, as of July 1947. A logical inference is that a large measure of this improvement is an outgrowth of the taxpayers' genuine concern over the expenditure of vast sums of public funds and a widespread belief that substantial retrenchments on a voluntary basis may not be expected from the offices and agencies concerned, in some quarters expansion continues to be the order of the day. Recent budget requests of many state and local governments in the U.S. have assumed proportions of surprising magnitude, resulting largely, it must be admitted, from withdrawals of financial aid by the U.S. government and from insistent public demands for more or better service, and from public-employee demands for standards of remuneration comparable to those enjoyed by persons in non-governmental employment. The law-making body of one midwestern state, sitting in the first quarter of 1947, found itself figuratively engulfed in a flood of bills calling for more public money, the requests covering practically the whole range of governmental activity from the township justice of the peace on one hand to departments and agencies of the state on the other.

Accounting has been defined as "the act of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof." Accounting is an art, not a science. It has two major functions: to record and classify events and transactions which are, in part at least, of a financial character, and to summarize, analyze, and interpret the records. A more significant definition would be of inestimable value to students and laymen alike—perhaps to accountants themselves. Unfortunately, it is not possible to reduce a complex subject to simple terms. Accountants use many common words, such as profit, loss, income, expense, and capital, with a variety of meanings, and with meanings that frequently differ from those of every-day life. The accountant's attempt to give common words a chosen meaning—neither more nor less—is not always successful, and it is therefore important to take heed. But accounting is nevertheless an act, and its terms, no matter how common, have meaning with reference to accounting operations.

The method used for calculating price and quantity variances in standard cost procedure deserves more explanation than is given it in cost accounting textbooks and current accounting literature, as of July 1947. The student in a standard-cost accounting course is likely to be perplexed by the glibness of the instructor in arriving at the amount of variation attributable to price on one hand and quantity on the other. The formula used in commercial practice demands a reasonable explanation since it is mathematically questionable. The purpose of this article is to justify the current practice, and to point out the theoretical issues that are involved. Some accountants, aware of the mathematical biases in calculating price and quantity variations, compute only the total amount of variation, and do not attempt to calculate the amounts of the individual variations attributable to price and quantity. But if the amounts of the individual variations are sufficiently significant to require administrative attention, this expedient will not, of course, prove satisfactory.