Knowledge that Transforms

Reviews the book "Managerial Accounting," vol. 1, by James O. McKinsey.

In the attempt to give the student a training in the fundamental principles of the various commercial subjects, and to develop in him the broader outlook which should result from the educational processes, marked changes have occurred in recent years in the methods of presenting materials in the classroom. In the college and university schools of commerce, for example, there has been a decided tendency during the past few years away from the classroom lecture and toward the use of what is commonly known as case material. A second tendency relating to the technical training of the student is the increase in class or socialized instruction. A matter which is almost or fully as important as that of improving the technical training of the student, relates to the introduction in the classroom of the study of ethical principles in business. Originally the apprentice was promised only a technical training in the field of his prospective endeavor. In schools, however, there is a growing desire to teach the student that it is not merely the making of money that counts, but that success in business comes from rendering a real service to the customers and to the employees of the concern, and even to the public generally.

The article presents information related to a research program conducted in business firms. The idea behind the working out a scheme of technical procedure a little more comprehensive and sound than, perhaps, it had been in the past. The first subject on which being investigated was cash. The researchers were led to that by reason of the fact that fraud had been rampant as is known during the past two or three years. Cash irregularities have increased tremendously in number and amount and volume and perhaps cash of all the assets is the most easily manipulated and stolen. In working out the program in connection with cash, three men of considerable experience in the profession met and formulated, out of their own experience, a program directed at the verification of cash balances and the accuracy of the cash records, all with a view of detecting any and all forms of cash irregularities--rather a pretentious undertaking, of course. After setting up this ideal or theoretical procedure they compiled from reports about 75 or 80 cases representing actual cash irregularities, giving consideration to the manner in which it bad been concealed and the method employed in the detection of the irregularity. Having set up the ideal procedure out of experience, they then proceeded to test these cases against that procedure, finding, of course, a number of weak spots, which then was corrected and strengthened, finally utilising the resulting procedure as a basis for the work of the organization in the verification of cash.

This article interprets government budget, as an instrument of control, as proposed in the U.S. legislation. In a very real sense the legalization of the budget, that act of realizing the financial plan which follows upon its preparation is the most crucial test of the effectiveness of any budget machine. The transmutation of the budget as a report into the budget as a law carries with it the liability that its real preparation may prove to be anybody's job, or, as we might put it, as the budget is legalized so will it be prepared. For constitutional reasons the budget law of New Jersey contains no provisions governing the legislative procedure upon the governor's proposals. It has been the practice of the joint committee after having received the governor's budget, to do whatever Investigating It deemed necessary and then proceed to draft the general appropriation bill, disregarding, if it chose to do so, the governors recommendations. As a result, the legislature has followed practically the same procedure since the adoption of the budget law as it did before in making appropriations. The U.S. practice at the time quoted may be taken as excellently representative of the operation of political considerations leading toward a financial plan prepared in the legislature.

Reviews the book "Mathematics of Accounting," by A.B. Kurtis and J.H. Cooper.

The article presents information on Harvard School method of case studies as experienced by the author himself. The Business School had operated for a number of years what was known as a Bureau for Business Research. That seemed to be the logical agency to begin the gathering of materials of this kind, and so the Bureau of Business Research was asked to obtain teaching materials for the development of the case method. In the beginning the Bureau of Business Research took a position which many of the professors in the school felt was quite unsound, namely, that any man whom they had on their staff could go out and gather cases in any field of business. It was the place where only people who can successfully gather cases are those with practical experience in that field of work; and at the present time the reorganization of the plans has not been completed the procedure which is being adopted as rapidly as possible is to have all of the cases gathered by men who have bad anywhere from ten to twenty years actual business experience. In other words, we are going to the other extreme for the time being. Men who are not even college men but men who have made a success in professional life, are being asked to come In and spend their time in helping bring together a body of materials which will be satisfactory for use as cases in the teaching of the various courses in the School.

Reviews the book "Retail Accounting and Control," by Albert C. Hodge.

This article focuses on the defects of monthly profit and loss statement. Accountants have consistently advocated the advantages which accrue to a business through the preparation and use of monthly operating statements, based upon the inclusion each month of all presumably applicable expenses, and upon the use of perpetual inventories. But, in his zeal to have such statements, the accountant's logic has not traveled the entire distance, with the result that the average monthly profit and loss statement, especially in manufacturing industries, remains quite illogical and meaningless. Because of the perpetual inventory control and adequate cost accounting system available, the cost of sales account and the gross profit, as reflected in the typical statement, may be regarded as adequate and as expressive of the facts which influence and determine them. Beyond the gross profit, however, the monthly profit and loss statement is quite inane, thus indicating a considerable mental prolepses in the field of analytical and constructive accounting. Much credit, of course, is due those who have developed factory cost and commercial accounting so that the cost of sales account does properly indicate the manufacturing cost or the purchase cost respectively of the commodities sold. The costs of sales, obviously, automatically varies with the volume of sales wherever a cost system is present. Cost accounting, in a sense, is a process of building up values which are expressed in finished product inventory accounts and in goods in process inventories.

The research program of any college of commerce ought to give first consideration to the educational situation but the second function is also a matter of importance particularly when it will always be necessary in undertaking any business research to get the cooperation of businessmen who can furnish with proper facilities. There are certain studies that are growing out of those that were previously made. One of these is a study of the unit selling expense and involves a comparison between those establishments which employ salesman on a commission basis, those where salesman are employed on a salary basis and those concerns which employ salesman on a mixed basis. The independent accountants who are the accountants, one might say, of Ohio and particularly those who do not represent the large accounting firms with many branches are interested in a project that will involve a study of expense ratios and balance sheet ratio with which one is familiar. Whether the accounting firms will cooperate by furnishing with information in regard to revenue statements and assets has not been fully determined. Two studies are being conducted at Ohio State which have not been classified as accounting studies and yet which seem to be likely to degenerate into accounting studies. One of these is the study of merchandise control.

The accrual method of accounting is commonly accepted as the most scientific and accurate method of handling accounts. Yet, in spite of this fact, a great many banks fail to realize the significance of the accrual principle. The accrual system is also especially valuable in affording an excellent check for the bank, and particularly so where the auditor or comptroller at the central bank wants to supervise the operations in the various departments of the main office and branch banks. This is the result of the fact that accruals must sooner or later be paid off in cash. At the same time, an accrual system that it is worth while to operate must be simple enough in application to be readily understood by the average bank clerk, comprehensive enough to cover all of the various operations in the banking business, and, most important of all, accurate enough to constitute an actual audit and control of the income and expense accounts. A satisfactory accrual system cannot be constructed overnight, but involves intensive and detailed study. It must not only provide for the accounting of accruals, but must also guard against undue duplication.