Knowledge that Transforms

The article discusses cash movements and periodic income determination. Conceptually, the determination of income is relatively simple. Income is produced as a result of business operations. The problem of accounting is not, however, the simple measurement of the difference between total revenue and total outlay over the life of an investment, but that of measuring the difference between revenues and expenses for a given segment of that life. Modern accounting breaks up a continuous stream of business activity into artificial segments known as accounting periods. This operation is designated as periodic income determination. This problem of periodic income determination is inseparably connected with that of property valuation. The understanding of the relationships between cash movements, income, and asset value does not, of course, immediately and automatically solve all the problems of profit measurement. The assumption that the value of the measuring unit remains stable is implicit in the foregoing discussion. The price-level problem is therefore an example of an important problem which remains unsolved. This problem concerns differences between real and monetary income and the maintenance of capital.

As the economy changes there must be changes in accounting practices. Accounting cannot serve a useful function by remaining static in a dynamic economy. New rules and methods must be devised better to account for assets, liabilities, and net worth and to report on financial status, earnings, and the utilization of resources. These are desirable goals even in a static economy, they become imperative in one that is shifting and changing. Accounting principles are defined as fundamental truths, concepts, or basic assumptions such as the cost principle and principles of objectivity, conservatism, consistency, disclosure, the stable dollar. The problem of price level changes concerns owner equity, not assets, and certainly not fixed assets in particular. This can be demonstrated by a simple example. On January 1st of a given year an enterprise borrows $50,000. It invests the proceeds of the loan in merchandise, sells all the merchandise for $60,000 net of selling cost during the year, and repays the loan at December 31st. This enterprise would have increased its purchasing power or productive capacity by $10,000, less any interest paid on the loan. If the enterprise had operated solely on this loan and if there were no other transactions, it would have no justification in taking any kind of inflation loss against this income regardless of how great the price level rise may have been.

Reviews the book "Accounting for Oil and Gas Producers," by C. Aubrey Smith and Horace R. Brock.

Reviews the book "Internal Auditing," 2nd ed., by Walter W. Bigg and J.O. Davies.

The article focuses on current challenges to accounting principles. These accounting problems are raised by build-sale-leaseback agreements, various forms of accelerated depreciation and last-in, first-out method. The author explores the development of these techniques and their development to present generally accepted principles of accounting. Over the years there is a trend towards long-term leasing of property as opposed to direct ownership. The motivating factors in many of these leasing arrangements, particularly in the case of build-sale-leaseback contracts, have been to permit the corporation to free its capital from fixed asset investment and to permit its use in operational areas in which the company is more experienced or to channel it into further capital expansion cycles of a like nature. It is doubtful whether these are the primary factors in lease financing. A more direct factor in many instances appears to be the securing of a higher charge against operations than is possible through annual depreciation charges based upon historical cost.

Reviews two books about accounting "Guides to Successful Accounting Practice"; "Accounting Aids to Management."

Reviews the book "Common Stocks and Business Cycles," by Edgar Lawrence Smith.

Series on the early stages of the Federal Government spending process--new obligational authority and obligations incurred--can be prepared from available operational statistics. Consideration should be given by the Federal agencies involved to preparing and publishing such series on a regular basis. Such budget information would be useful and complementary additions to the sections on government expenditures in such publications as the Treasury Bulletin, the Economic Indicators, the Federal Reserve Bulletin, and the Survey of Current Business.

The article presents an annual convention "Flexible Entity Accounting" published in 1960 issue of the journal "The Accounting Review." Fundamentally, the "refuse and dregs" idea is based on the triple theory that the large error is improbabic for two reasons, a bookkeeper tends to become more careful as he moves to the left in the Process of computation and the experienced bookkeeper, developing a sense of proportion in dealing with figures, will intuitively recognize a disbalance in the significant error. An employee, whatever his professed feeling, is in consort with the interests of an employer or client and the error of the employee, therefore, tends more often than not to favor the employer or client, mistake in the addition of debits, for example, usually resulting in a greater debit than warranted and a contrary result is more often than not experienced in the addition of credits-the whole resulting in a disbalance between credits and debits in the employer's or client's favor; thus the term, favorable disbalance and finally the advent of an upsurge in bookkeeper prestige gained by his more independent and responsible position results in a correspondingly positive moral factor in dealing with his company as well as in dealing with the accounting firm-and hence, an increased devotion to his work with a companion gain in accuracy.

The article presents information about the report of the 1959 Committee on Management Accounting. The 1959 Committee has directed its efforts toward an amplification of this view of the nature and significance of management accounting by stating in more definite terms the functions to be performed by accounting in a business entity organized for profit, and by a listing of the major problem areas in which management accounting is of prime importance. The role of management accounting is to provide the management of a business with analyses and evaluations to assist in the fulfillment of this basic responsibility for effectively planning and controlling profits and investments. It is a service which is oriented toward the evaluation of the financial soundness of the future operating plans and programs of the enterprise and the anticipated profit consequences of alternative courses of action. The Committee believes that a significant need exists for a better and more general awareness of the proper role of management accounting in a well-managed business.