Knowledge that Transforms

Abstract The many costs of operating a manufacturing enterprise, or of any business, have a tendency to increase faster than income unless a positive cost control program is functioning effectively. An effective cost control program is usually built around the cost accountant's reports and summaries of operating data, and management's corrective action taken as a result of studying these reports and summaries. Thus, in a broad sense, cost control is the responsibility both of the cost accountant and of management. The former is responsible for the recording and reporting phase of cost control, the latter for the taking of corrective action. The general responsibilities of the cost accountant in the function of cost control are (1) to plan and supervise the work in his department to the end that reliable and accurate cost data will be available for preparing reports, and (2) to prepare and submit reports, properly analyzed and interpreted, at such times and of such types as will make them of the greatest value to management for use as bases for controlling costs. The final responsibility rests with members of the management group who are line executives and who are responsible for directing the work of others. When reports are received, management should study them and make such investigations as may be necessary of deviations from planned performance. The responsible executives should then take whatever action is necessary to remove or correct the cause of reported deviations.

Abstract Sound principles of asset valuation provide a basis for approximations of current values. The major objection to the adoption of theoretically defensible principles of valuation and associated cost measurements is the opinion that difficulties of practical implementation are insuperable. This argument is considerably weakened by the fact that revaluations of assets take place in practice. Empirical studies demonstrate that the large magnitude of such adjustments results in important effects on net income. There is little evidence to indicate the nature of the considerations which guided such adjustments. It is suggested that if the fact of asset value increases were recognized in general accounting practice, the likelihood of the achievement of objective standards would be improved. Additional objections to the economic principle of asset valuation and associated cost measurement procedures are considered. The assertion that incorrect expense measurement has little significance for price policy is true only under a special set of narrow assumptions. The objection that identical physical assets are not, in practice, replaced is met by the provision that source of similar services will be replaced. If in replacement it is desired to produce a different type of services, this raises a problem not relevant to the valuation issue. Another suggested reason for disregarding value changes is that such value changes are self-canceling. This assumes a symmetry in cyclical fluctuations which is not demonstrable. It ignores changes in values resulting from changes in the economic structure or secular changes. The non-recognition of the economic principle of valuation in accounting regulations established by governmental agencies is also cited as a basis for its rejection. There is circularity involved here, however. In large measure, government tax regulations seek to reflect the best "recognized accounting principles."

Abstract This article presents some problems prepared by the Board of Examiners of the American Institute of Accountants and were presented as the second half of the November, 1952 C.P.A. examination in accounting practice. The candidates were required to solve all problems in four and a half hours. The weights assigned were: problem 1, 12 points; problem 2, 18 points; problem 3, 20 points. The suggested time for the problems are problem 1, 45 minutes; problem 2, 90 minutes; problem 3, 60 minutes. The first problem is that F and T are partners in the operation of a retail store. They are concerned about the apparent discrepancy between their income and their volume of sales. Although they maintain incomplete accounting records, their experience in the business suggests to them that there is possible theft or larceny on the part of their staff. The partners have asked you, in connection with your initial audit to apply such tests as you can to determine whether there is any indication of shortage.

Abstract Fixed asset accounting is of fundamental importance in public utilities and railroads because of the relationship between the valuation of property and the rates in those industries. While there is no precise uniformity in the regulations of the various jurisdictions, the general rule is to provide definitions of property units suitable for the particular industry. These units are fairly carefully defined in the uniform systems of accounts and accountants can refer to the manuals at any time that a fixed asset work order requires a distribution. In as much as differences of opinion regarding the interpretation of some transactions are sometimes possible, it would be an exaggeration to claim that the procedures result in complete accuracy in an abstract sense. However, there is no doubt that written definitions of fixed asset units help to promote uniformity. As a general rule, definitions of public utility and railroad units of property were originally determined by engineers. Once they had been satisfactorily defined, however, accountants experienced no particular difficulty in using them for accounting purposes.

Abstract Reviews three filmstrips on bookkeeping. "Text-Film Filmstrips on Accounting,"; "Beva Filmstrips on Accounting,"; "VuGraph Bookkeeping Visual Aid Kit."

Reviews the book "Principles of Accounting --Advanced," by H.A. Finney and Herbert E. Miller.

Reviews the book "Accounting Procedure for Standard Costs," by Cecil Gillespie.

Abstract Accounting and auditing personnel of the U.S. Department of Defense constantly receive suggestions from accountants, from its contractors and their trade association representatives and from procurement personnel within the Department that its contracts should only place an obligation on its contractors to maintain an accounting system in accordance with generally accepted accounting principles and practices. The purpose of this article is to consider these suggestions and to indicate the accounting and auditing problems facing the Department of Defense in connection with its procurement contracts. Cost-type contracts require most contract costs be readily ascertainable. Generally accepted accounting principles provide standards for the evaluation of the financial position of an enterprise and for the measurement of income and expense over a given period of time. Fixed price contracts may also incorporate an incentive feature. Under this type of contract a unit target price is agreed upon during the initial negotiations with the contractor. The usual annual audit by independent auditors is directed toward the determination of the reliability of management's representations contained in the client's financial statements. The major audit effort is placed on balance sheet items with somewhat less emphasis on income and expense accounts.

Abstract In the July 1952, issue of the "Accounting Review,"under the title "Some Notes on the Bond Yield Problem," the author discussed the application of a modified or improved Newton's correction formula to the problem of finding the accurate yield on a bond, the improved formula having been briefly set forth in an earlier paper by Hugh E. Stelson,' who had drawn it from one of the mathematical journals. This article includes the continuation of numbers of formulas and equations herein from where they stopped in the preceding article. With serial bonds, the problem of finding the initial approximation to the yield rate is more acute than it is with a single bond. This article also discusses the matter appearing in the thirteen pages of Mr. FitzGerald's article in the "Accounting Review," for January, 1953, on accounting for variations in gross profit.

Abstract Up to the middle of the nineteenth century, most businesses were not too large or complex. They carried their inventories at cost and by the first-in first-out method. The problem was one of physical count and extension at the last invoice prices. Several authors of accounting books believed that the market values of assets should not be ignored and should at least be mentioned, probably by footnote in the balance sheet. During that time, the statement of financial condition was considered more important than the profit and loss statement, because the latter statement was merely used to prove the correctness of the change in the proprietary interest in the balance sheet. In 1929, the American Institute of Accountants reaffirmed the lower of cost or market rule for inventory valuation. In 1943, the Research Department of the American Institute made a survey of members of its Committee of Accounting Procedure for the purpose of formulating rules for inventory pricing. According to replies, it is evident that there was some agreement on application of the lower of cost or market value. However, the study reflects quite a bit of evidence indicating differences of opinion on many points in connection with that method of valuation and its application.