Knowledge that Transforms

Abstract The conventional accountant's attitude toward imputed costs emphasizes his tendency to adopt a disbursements or outlay concept of cost. The traditional accountant would claim, for example, that imputed interest as a cost is purely hypothetical and arbitrary. If investment on owned capital is subdivided between those portions invested in machinery and equipment and inventories as contrasted to an investment in land, the traditional accountant would, furthermore, be unwilling to recognize implicit rent. Finally, he does not consistently recommend the inclusion of a charge among the operating accounts for proprietor's salary. Thus the emphasis of traditional accounting revolves about sums of money paid out for goods and services in the accumulation of costs. The cost accounting concept of cost represents a development from period costing to the matching of costs to products. This concept is today still in process of evolution. It does not reject the period concept of cost; rather, it seeks to modify such a concept in order to associate costs with product. It further extends the recognition that period accounting gave to the idea of a going concern.

Abstract The accounting practices and the periodic financial statements of many business concerns are confusing, and in some cases grossly misleading to management, investors, creditors, students and the general public. In fact, it seems on occasions that only the accountants who originated the techniques or inherited the procedures from those who preceded them can explain the logic behind the accounting methods in use. The accounting period concept is relatively a recent development in business. In antiquity the accounting period was the life of the business venture. Income, as the term is generally used, is computed by matching revenues realized with costs consumed or expired, in accordance with the cost principle. Each accountant should conduct a periodic re-examination of the accounting practices of the business concerns in which he is interested for the purpose of assuring the management and himself that every accounting procedure has been reviewed and corrected for the purpose of obtaining the most accurate matching of cost expirations and revenues that it is possible to obtain.

Abstract Reviews the book "A Procedural Study of Accounts Payable Methods."

Abstract It is always difficult to disagree with the logic of an argument presented by Professor W. A. Paton. His article published in the January 1949, issue of the journal "The Accounting Review," presents a devastating barrage of reductio ad absurdum, invective, and fascinating wit, which may too readily be accepted by his readers. The issues at stake should be drawn dearly. Irrelevant comments and argument based upon false assumptions should be discarded before there is any disposition to repudiate the statement, Accounting Concepts and Standards Underlying Corporate Financial Statements. It should not be assumed that because of insistence upon the use of recorded cost as the only available objective information there is any suggestion of belief in or advocacy for the proposition that careful consideration should not be given to important changes such as may be found in price level changes and many other considerations. However, such considerations lie wholly beyond and outside of the area of basic corporate financial statements and at the same time may be said to lie within the area of managerial judgment, investment analysis, and interpretation. In the latter area, it is to be assumed that the accountant of integrity, competence and social responsibility may make a valuable contribution.

Abstract A recent article appeared in the "Wall Street Journal," captioned, "Businessmen, Professors Disagree on Subjects Best for Commerce Career, But No One Favors 'Vocational' College." The occasion for this article was the publication of a study made by the Society for the Advancement of Management concerning the courses businessmen and college professors considered essential for a well rounded education for business. It was not surprising that businessmen and professors were unable to agree in all cases, as educators themselves find numerous areas of disagreement concerning curricula content. The results of this study are interesting because of the emphasis given to the study of accounting as a preparation for business. Of more significance, however, was the recognition given to the so-called cultural courses of study. The demands placed upon accountants are such that a thorough technical training plus a broad general background are essential for success in this area of work. This is particularly true in the field of public accounting.

Abstract In the seventeenth century the chamber of London, England, was something more than a city treasury. Indeed, its primary function, the care of orphans' funds, was more social than economic. In the period before the rise of banking, the chamber was an important lending institution, a source of working capital for the trading companies and merchants of the city. Its effect upon national expenditure, while indirect, was at times considerable, for citizens whose money was tied up in commercial ventures often borrowed money lent by individual to the king from the chamber. On the other hand, it provided an investment outlet on a short-term basis when the city, needing cash for the management of its own affairs, occasionally must borrow at four to eight per cent for six months or a year. And of course it served the usual function of a city treasury in receiving taxes, fees, fines and rents and in paying salaries and maintenance costs. Until revenue far in excess of that in the decade preceding the Civil War could be assured, the chamber of London must continue to sink ever deeper into debt.

Abstract The Article traces the origin and development of accounting as a science. In the United States during the first quarter of the twentieth century, accounting was a young and rapidly growing profession struggling to improve its adaptive behavior in an environment of mechanistic science. Accountants appealed to science for authority and found employment in a search for principles that would place accounting on a high plane of orthodoxy in an economic world arranged by a natural order of things. William Morse Cole defined his subject as "scientific analysis and record of business transactions,". In 1910 a LaSalle Extension University publication reported that "accounting is a science which aims at systematic presentation of business facts and whose rules are designed to indicate or state the principles upon which such a record of business facts must be made." The bright days of the golden 1920's found accounting with definite direction toward an acceptable goal. Hat- field wrote of the "science of accounting" in a formative stage, and warned against the foolhardiness of attempting categorical treatment of the subject. Science requires an instinctive faith in an "order of things." Is it not to be expected that many modern accountants, living in a scientific age, would search for authority with a faith in "nature," and with a desire to subdue the discipline with "irreducible and stubborn facts"?

Abstract The chief importance among the factors giving rise to business statistics is modern large-scale business enterprise. The development of this form of enterprise has brought a separation of management from actual operations. This has been true not only for top general management but also for top departmental or technical management. As a result of the change, management has been compelled to develop a technique of relatively remote control. The essential feature of the new technique of remote control by which top management bridges the gap between itself and actual operations is the more effective use of records. As a result, accounts have become of much greater importance for management. But the new management has come to require also records of data outside the double-entry system. Management now finds itself with two different kinds of records on its hands: accounting records and statistical records. The managerial experimentation which has developed business statistics is like the operation of a military force in the field.

Abstract An area of accounting that is subject to varying interpretations and inconsistencies in reasoning is the statement of source and application of funds used in reporting financial changes. Moreover, little effort has been made to iron out these shortcomings. The fact that this statement has always been relegated to a minor position in accounting use is apparently one reason why those who have worked with it have often been satisfied with their own ideas and have been unaware of or indifferent to the situation that exists. And, in reverse, it may well be that the inadequacy of theory in this area has prevented a wider use of the statement. In recent years there have been repeated predictions that the funds statement will play a more important role in the future and such a trend seems to be taking place in current financial reporting. If the statement is destined to greater usage, now is the time to crystallize further the thinking about it. To illustrate an important difference of concept, the reader is asked the question whether or not funds are involved in a transaction in which a plant is acquired by the issuance of securities without cash or other current assets being transferred.

Abstract The article presents views of the author on accounting participation. To date this work has progressed almost entirely without participation from accountants. This lack of participation has, I think, been unfortunate. Accounting participation might have served to accelerate certain developments. It should not have taken so long to realize, as scholar Andrew Hagen notes that national-income measurement is best thought of as double-entry bookkeeping, a perception that at once made clear that the exact relationship between income and output. Moreover, the process of analysis has not been carried through to its ultimate conclusion. It is particularly deficient on the balance-sheet and especially the equity, side. In hands of economists it was only natural that emphasis should rest on income measurement. Only recently and imperfectly, has attention begun to be devoted to the balance sheet. To date, however, resolution to the equity accounts hits not been successfully carried out. It is difficult to believe that this balance sheet backwardness would have occurred if accountants had participated more systematically in these developments.