Knowledge that Transforms

Abstract This article focuses on the structural fundamentals of financial statements. Financial analysis sometimes goes astray in assuming that the balance sheet at the year-end represents the average condition prevailing throughout the year, a condition which in some respects is usually not the case. An average balance sheet for the entire year would provide a better basis of comparison. Consistent treatment of the various classes of elements in all financial statements would soon lead even the casual reader to a better appreciation of the basic financial aspects of business activities and their results. The primary relationship expressed in accounts is that of equality. Entries are equations, ledgers "balance." Accounting starts, then, with the primary proposition that this equals that. Naturally many accounting statements stress this feature of "equality of factors." In the balance sheet attention is directed to the fact that property is equaled by ownership. A cash statement may show that the opening balance plus receipts equals disbursements plus the closing balance.

Abstract Reviews the book "The Theory of Competitive Price," by George Stigler.

Abstract The State of New York in operating its many and varied governmental activities for its 14 million inhabitants places the responsibility for the conduct of its financial affairs upon the State Comptroller, who is elected by the people for a term of four years. In American democracy, the State's business is everyone's business, and the inevitable consequence of failing to make some person specifically responsible for the conduct of definite phases of its affairs is that everyone's business becomes no one's business. In many spheres of governmental activity, such as policing, administration of justice, and supervision over banks and insurance companies, the failure to establish offices and officials responsible for these activities would be disastrous. In other types of governmental activity, the failure to establish responsibility causes confusion and opens the gateway for waste and high costs. The State Constitution designates the State Comptroller as chief financial officer of the State and specifically outlines his duties which are set forth in even greater detail in the State Finance Law. These duties are, to audit all official accounts; to audit all vouchers before payment; to audit the accrual and collection of all revenues and receipts and to prescribe methods of accounting.

Abstract Reviews the book "Practical Accounting," by Edwin L. Theiss and Jay L. Hunter.

Abstract This article presents questions on accountancy, which formed the part of the second half of the May 1943 certified public accountant examination in accounting practice, prepared by the Board of Examiners of the American Institute of Accountants. The candidate was allowed four and a half hours to solve all problems. Points allotted for each question are also given in the article. Question 1 carried 12 points, second question carried 22 points and third question carried 16 points. In the first question, from the given data the examinees had to prepare a summary of cigar-counter transactions, also showing amount of shortage, recommendations for maintaining adequate internal check and general-ledger accounting control. In the second question, from the given audited balance sheet, statement of profit and loss and summaries of ledger accounts of a company, the examinees were asked to prepare a statement of receipts and disbursements, condensed statement of application of funds, showing how the decrease in the net current and working assets came about, statement of profit and loss and statement of receipts and disbursements.

Abstract In this article the author presents an interpretive observation of the examination questions in auditing. He analyses, whether the examination questions changed as auditing has developed during the past forty-five years. According to the author, the observation of the studies conducted in this field shows the tendency for questions on auditing procedure to grow less prominent. Auditing theory and non-auditing questions increase. The ranking of question types in these studies also provide some suggestions of the change. The first ranking item in the earlier period was number ten in the list for the lastest period, the second later became fifth, the third was seventh, the fourth practically disappeared later, the fifth item became fourth, and the sixth became eleventh. It is clear in the studies that changes are taking place. Broad general questions on the nature and purpose of auditing are of late being replaced by questions that are more pointed and specific. Earlier auditing examinations made frequent use of questions on the theory of accounts. The trend has been away from this type of theory question and toward theory as it involves accounting statements.

Abstract There has been considerable public criticism of what appeared to be unduly high costs for the administration of public assistance and relief. Administration expenses have generally been contrasted by legislators and the public with the cash payments made directly to public assistance beneficiaries. Grouping and contrasting expenditures for assistance, on the one hand, and administration, on the other, have encouraged the assumption that costs of administration represent merely the cost of distributing the money expended for assistance. Persons familiar with public assistance operations realize that other functions are also performed. They realize further that the cost incurred for investigating cases, which never receive relief, may be more in the interests of the taxpayer than haphazard and inappropriate disbursements to individuals not entitled to benefits under the public assistance program. The standard classification of public assistance costs is a joint recommendation of the American Public Welfare Association and the Social Security Board. Official participation by staff members of the Social Security Board made it possible to incorporate the thinking and recommendations of the experts concerned with national phases of public welfare administration and accounting.

Abstract Reviews the book "Federal Tax Course," by George T. Altman.

Abstract The need of an accounting for depreciation of capital assets is generally recognized. It is known, however, that depreciation and repairs are related, for, to establish a reasonable depreciation rate, it is necessary to consider the policy pursued relative to repairs, since repairs affect the useful life of property. Proper treatment of depreciation is not possible if a neglectful policy in regard to repairs is pursued. Also an inadequate depreciation policy is liable to render unsatisfactory any attempt to treat repairs scientifically. The word "repairs" has been used with so many varying meanings that its place in the terminology of accounting is questionable. Sometimes it is used synonymously with "maintenance," sometimes synonymously with "renewals," sometimes in a sense different from either maintenance or renewals. As distinguished from additions and betterments, repairs render a machine better than it was immediately before such repairs were made, yet they do not constitute a betterment, because they do not lengthen the life of the machine and do not make it essentially mere serviceable. Repairs prevent the loss of service which a machine normally possesses and result in more efficient operation, both present and future.

Abstract The fact that the complicated business of making war can be epitomized for certain purposes into a few guiding principles suggests that accounting also may rest upon certain leading ideas which we may call principles. The military strategist would not thumb through a pocket list to choose the principle to be applied next to his situation. Neither would an accountant. Principles probably serve their purpose best after their essence and their interrelations have been made so thoroughly a part of a man's thinking processes as to have been forgotten as verbal propositions. In times like these, generalizations about the science of making war are interesting for their own sake to laymen. But they can be of more than passing interest to accountants because they illustrate so well the useful art of generalization. About a year ago a compact summary of the principles of war was published, as of October 1943. The nine principles stated in the summary are briefly summarized in this article to give further emphasis on the factor of interdependence.