Knowledge that Transforms

The article focuses on the use of a computerized accounting program for the IBM 1620 automatic data processing equipment which acts as a teaching aid in the basic accounting course. The said program would help young accounting students in understanding the relationships existing between the various financial transactions. To implement this concept, a typical problem dealing with the various journals was selected to be programmed as the demonstration problem on the computer at the Air Force Institute of Technology. This problem was selected not only because journals play an indispensable role in the recording of business transactions, but because understanding the various journals and the important parts they play is rather difficult for the beginning student. In explaining journal problems to students, a great deal of time is consumed, and it was felt that the speed of the computer could be used with great advantage in this particular area. In addition, a quick response to student questions could also be printed out by the computer.

The essential conclusion of this paper is that investment and financing decisions must be kept separate. The ability to identify specific sources of funds with specific investment proposals is, at best, an illusion. This point of view is supported by an argument analogous to that applicable to many joint-cost problems of accounting as well as by the "pool of projects" and the "pool of funds" concepts. Investment decisions should be evaluated by the usual cash-flow techniques, as illustrated in this paper. The decision to finance by alternative methods should be based on the rate of interest to be charged which could legitimately be adjusted for differences in restrictions inherent in alternative sources of borrowed funds. Great care must be exercised to avoid the pitfall of constructing illusory discounted cash-flow differentials which are based upon apparent but not real differences in the amount of borrowings. As for leasing, the essential features of a long-term, non-cancellable lease must be understood; it is partially a method of financing and partially a method of investing. For proper evaluation, the financing aspects should be eliminated at the lowest rate of interest available to the company. With financing eliminated, the lease can then be compared to an outright purchase to determine which is the least costly method of acquiring the services of the equipment or facilities under consideration.

The article presents the method and rationale of net working capital analysis that can help accounting students understand the relationships between the balance sheet and the income statement. Regardless how complex and lengthy the problem in net working capital analysis presented, considerable time and effort will be saved by not preparing formal working papers. The method accomplishes the analysis systematically in a minimum amount of time. Further, by forcing reconciliation of each account and analysis of the items that flowed through each account, three valuable pedagogic objectives are accomplished.

In cost accounting many of the biggest problems occur in the overhead element. One of the frequently posed overhead problems rise in consolidating substantial error in the absorption rate due to a volume change in operations. The usual text treatment leaves past operations uncorrected, simply alters the absorption rate to a new incorrect figure. This lets the error in the months of operation prior to the recognition of a need for some adjustment. A type of graphical analysis might be utilized as a simple but effective tool to clearly demonstrate the respective alternatives of either making an adjustment in the accounts and using a corrected rate or allowing the old figures to stand and simply routing your overhead application rate to a new basis designed to offset the past error by a counterbalancing error over the remaining financial period. However, graphical analysis vividly demonstrates the difference in the effect of the alternatives on absorbed cost during the planned production period.

Reviews the book "Electronic Data Processing," by E. Wainright Martin, Jr.

In this article the author discusses the tax planning lesson for teaching elementary accounting course to accounting students. The lesson can be presented in a single class period, and can demonstrate the possibilities for creative solutions to common tax problems. The author also explores the problems faced by teachers in teaching elementary accounting course. In addition, the author observes that the advantages as well as the disadvantages of the corporate form of business organization can be raised with consideration given as to why corporations allowed to do so will or will not elect to be taxed as partnerships.

The purpose of this article is to propose a new method of making the lease-loan choice. This should be of interest to accountants since methods of lease evaluation have important implications for accounting. Much of the disagreement referred to in the preceding paragraph relates to the proper treatment of lease obligations in financial statements. Just as these statements and the judgment of accountants that lies behind them are important determinants of the attitudes of lenders and analysts towards leasing, so also the financial aspects of leasing have implications for proper accounting treatment. The article progresses from a discussion of the nature of leasing to the explanation of a method of lease evaluation that recognizes the nature of leasing. It have fashioned a set of operating instructions that apply this method to lease situations of a particular type. It also applied these instructions in a sample calculation showing also how a computer may be used. There are still questions about estimating the loan rate and the average cost of capital, determining whether the lease choice has a risk effect, applying the method when there is a risk effect, and about the investment decision to take the equipment even in its more advantageous lease or loan form.

The article presents problems and their solutions prepared by the Board of Examiners of the American Institute of Certified Public Accountants, and presented as the first half of the Certified Public Accountants examination in accounting practice held on November 03, 1965. The first question deals with the taxable income of an employee who died, and the liability of his employer towards his widow. The second question deals with the accounting of merger of a proprietorship. Certain questions deal with the issue of calculation of earnings per share. One question deals with the issue of accounting of wages and salaries of employees of a proprietorship. Another question deals with the issue of capital gains tax of a stockbroker, who sold his sole residence. One question deals with the issue of recognition of loss for a stolen diamond ring, given that it was not insured, and that it had different cost and fair market value. Another question deals with the issue of claim amortization of leasehold improvements of a retail store.