Knowledge that Transforms

Reviews the book "Depreciation and Replacement Policy," edited by J.L. Meij.

This study was limited to marketing cost analysis practices for manufacturers, and included twenty-eight companies engaged in a wide variety of industries. In each company, accounting and marketing management personnel were interviewed and reports were examined in order to establish the nature of accounting reports, periodical and special, issued to marketing management and the technical aspects of their preparation. This survey also revealed that in one firm more than fifty percent of the total number of customers brought in less than two percent of the sales volume. In the same case, forty percent of the number of items carried in stock amounted to less than two percent of sales volume. The extent of the misdirection of marketing effort is revealed by these facts and the knowledge that many marketing costs are influenced by the number of customers, and size of the product line and inventory. Finally it can be concluded that analyses relative to customers, channels, salesmen, and order sizes are not widely prepared at present. This would certainly indicate a failure to orient cost accounting analysis to the market as would be suggested by the reorientation of managerial interest.

Much has been said about the importance of the science of statistical sampling in the work of accountants, auditors and financial managers. There is no longer any doubt that statistical sampling must become an integral part of the financial manager's, accountant's or auditor's kit of tools, and management can no longer afford to exclude this vital subject from managerial training programs. There are many executive development courses being given both in and outside the Federal Government on such subjects as "automatic data processing," "human relations," "public relations" and "decision making." What is disconcerting, however, is the continued absence from the management training programs of the equally important subject of statistical sampling. This article describes a course recently given on this subject and points out possible ways of spreading successful training programs along this line. Courses in Statistical Sampling have become an integral part of the formal curriculum of a limited number of colleges and universities. It is conceivable that in the not too distant future many more schools will add sampling courses to their curricula. From a financial manager's viewpoint, one of the difficulties with, most of these courses is that they are pitched too high and are not geared to management's needs both in content and instruction.

1963 marks the 40th anniversary of the publication of economist John Maurice Clark's Studies in the Economics of Overhead Costs. This paper is a belated review of that important and significant volume. As far as, according to the author, this is the first review of this book by Clark to be given before an accounting audience and none has appeared in an accounting journal. Two of the sister arts, economics and statistics, recognized the accounting significance of this work. Distinguished accountants who were later to become presidents of the American Accounting Association prepared the reviews of it in the journals of their professional organizations. Clark makes the point repeatedly that acquisition of knowledge and technical skills by workmen and researchers is an overhead cost to the firm. He hints that these costs should be capitalized for they give rise to benefits of an enduring sort. Much of this paper has been taken up with criticism of a relatively minor sort of Clark's views and of the difficulty of implementing some of his notions. Such comments should not be allowed to mar the major sentiment the author hopes to express.

Credit balance as a liability in the balance sheet has recently become a question of greater interest. The following discussion is concerned primarily with future expenditures that are related to operations. One characteristic of liabilities to be emphasized is their relationship with assets already recognized. For proper reporting of financial position, liabilities must be matched properly with assets recognized. In many ways this matching on the balance sheet runs parallel to the matching of expenses with revenues in the income statement. Secondly, where installment sales are recognized as revenue when made, but become taxable revenue only as collected, the full amount of assets to be received from given installment sales is recognized at the time of the sales. Since the future income taxes to be paid at the time of collection are directly related to and payable out of assets already recognized, there is no question but what the deferred income tax on such receivables is a liability in the broad sense of the term.

Reviews the book "Introduction to Accounting," by Elwin W. Midgett.

The problems mentioned in the article were prepared by the Board of Examiners of the American Institute of Certified Public Accountants, an organization and were presented as the second half of the CPA examination in accounting practice on November 8, 1962. The candidates were required to solve problems 1 through 4 and either problem 5 or 6. The suggested time allowances were as follows: Problem 1, 25 to 35 minutes; Problem 2, 50 to 60 minutes; Problem 3, 50 to 70 minutes; Problem 4, 30 to 45 minutes; Problem 5 or 6, 40 to 60 minutes.

The purpose of this article is to add a somewhat different point of view relative to the very interesting and complex problem of accounting for depreciation and income taxes when the depredation for tax purposes is different from the depreciation computed for financial accounting purposes. A problem in financial accounting arises whenever the internal revenue code allows an item to be expensed for tax purposes at a rate or over a period of time different from that which a reasonable accountant would use. There are several possible methods of accounting for this situation. The argument of this paper is that tax computations affect the value of an asset, thus affect the amount of the costs written- off as expenses during the period. The answer to the problem of allocating the cost of an investment to different time periods lies in the recognition that depreciation accounting is tied to expiration of value, and the write-off of an asset for tax purposes changes its value.

Recent developments in learning theory suggest an opportunity for substantial improvement in methods for teaching accounting. Since 1954, there have been significant findings in the area of educational psychology, which appear to have a bearing on how students learn accounting, and how it might better be taught. These new laws of learning differ in many respects from the old laws of learning developed prior to 1940. This article notes some of the old laws of learning and the teaching methods they support and then examine some of the new laws and their implications to accounting instruction. These old laws are not necessarily completely false, but they are in some ways false and open to reexamination. If a judgment had to be made on them, it might be that they and many others like them are more false than true. There is a need to distill out their essential truth and define the conditions where they apply and to learn also the conditions under which some other generalizations hold. Research in accounting educational methods is a great need.

Reviews the book "Accounting Theory: Continuity and Change," by A.C. Littleton and V.K. Zimmerman.