Knowledge that Transforms

Abstract At the annual meeting of the American Association of University Instructors in Accounting in Pittsburgh in 1921, one of the prominent accountants of the U.S. read a paper entitled "The Need of a Broader Conception of the Work of the Accountant." Early in his discussion this accountant stated that all of his firm's work was built about its annual and periodical audits. He proceeded to say that practically all of the work done in constructive accounting, public utility accounting, tax work and industrial engineering, resulted directly or indirectly from these audits. A partner in another accounting firm, which does work of an entirely different nature, and the partners of which, presumably, have little interest in the auditing aspect of accountancy, recently stated that it was a real problem whether or not the auditing work would largely supersede the other accounting activities in which the firm was more interested. These two examples, taken from the experience of firms who are not primarily interested in auditing, tend to emphasize the importance in the work of almost every accountant of the annual or periodic audit. The constructive audit is and probably will continue to be, the most important part of the public accountant's work.

Abstract Since "The Accounting Review" is published by and for a group of teachers, it seems .fitting that occasional attention be given to the pedagogy of accounting. In what does the pedagogy of accounting consist? Essentially the answer will be identical to that given in response to a question of the same nature applied to any science. One must lead the novice carefully from the known to the unknown, one must continually stimulate him with the own eagerness and zeal for the science. One must relate the theoretical to the practical, and one must unceasingly drill on fundamentals. All teachers of accounting are trying to put across the subject in a way that will result in a minimum of confusion on the part of the student as to what it's all about and a maximum of concrete results gained. To be more specific, one of the problems is expeditiously and with the least use of the forceps to extract a number of false conceptions from the mind of the average student, coming, as he does, untrained but many times with certain definite preconceived notions regarding income, surplus, accruals, controlling accounts, reserves, expenses and many other accounting concepts.

Reviews the book "Profits, Dividends and the Law," by Prosper Reiter.

Abstract The tenth annual meeting of the American Association of University Instructors in Accounting was especially noteworthy because of the able papers given on the subject "Research Work in Universities." Inspired by these papers the present writer decided to ascertain approximately what graduate work in applied economics the American universities were doing. As there were no data available on this subject, a survey was started. This paper is the result of the survey conducted by the Association. The basic courses in commercial law are so fundamental that practically all graduate schools of business offer them. The commercial law courses are 8.4% of the total applied economic courses in non-urban schools and 6.2% in urban schools. This variation is due to the difference in the total number of courses offered in non-urban and urban schools as the number of commercial law courses offered is practically constant. The unusual number of commercial law courses offered at American University and Pennsylvania University is doubtless due to local conditions, the excellent standing of the graduate law school at the former and unusual complexities of the State law code at the latter. Business management ranks first or is tied for first among the applied economic groups in five out of the twenty-seven schools.

Abstract In these days of business dissection and analysis, much emphasis has been put on the inferences leading from the financial position of a given enterprise in relation to its past records and to the achievements of similarly situated organizations. It is also true that comparisons of balance sheets are vital to significant financial and operating ratios and to the determination of credit indices and cyclic trends. But the lack of uniform balance sheets and uniform principles has hampered the progress of the analysts and has made more than one of them qualify his published results with such remarks as "one wishes the sources of financial data could be called reliable" or, more directly, "the reader will appreciate that the information which can be derived from published balance sheets leaves much to be desired." Most accountants have limited their excursions into the field of valuation to attempts to decide for themselves-and perhaps others-whether inventories should be valued at cost, cost of reproduction, market price, and even selling price, whether receivables may appear at present values on the balance sheet, whether bond discount must be retired on a straight-line or investment basis, whether it is proper to write off depreciation on the equal installment or sinking fund plan, whether cash discounts to customers reduce sales or increase selling or financial expenses, and so on.

Abstract One who undertakes to audit the books of real estate concerns is apt to run afoul of situations as complicated and obscure as it is possible to imagine. The most ingenious inventor of Certified Public Accountant questions could furnish no worse tangles than are to be found in the accounts of this type of business. The examiner is under the handicap of having to produce most, at least, of the salient facts in plain black and white, whereas the details of much that goes on in a real estate office are hidden away in the terms of some lengthy contract, or, worse, lie buried in the memories of the several persons who took part in the transactions, each one of whom may have a different recollection of what took place. The process of determining the true history of the deal was so like fitting together the irregular sections of a picture puzzle that simile may conveniently be used. In two respects this puzzle was more difficult than the ordinary one. In this case the parts had first to be found before they could be placed in the proper juxtaposition. Furthermore, while the usual puzzle is accompanied by a completed picture showing what the result will be when the pieces are correctly placed, this feature was lacking in the present case. All that was to be had was the assurance that when the pieces were found and brought together in the proper manner a picture would result.

Abstract In spite of all that has been written in recent years with regard to depreciation, confusion still persists. A fairly recent article attempts to prove that owners of buildings are cheating themselves by charging depreciation at too high rates. Rates of two to five percent, varying according to the type of construction and other conditions, are too high, the writer argues, not because buildings of these types last, on the average, longer than the corresponding number of years, but, forsooth, because an annuity of the amount of the annual charges produced by using these rates will, when properly invested, amount to a greater sum than the cost of the building by the end of the given length of life. For example, $50,000 building whose estimated life is fifty years will give rise each year to a charge to depreciation of $1,000 on the straight-line method. An annuity of this amount invested at 5% will amount to no less than $209,348 in the same length of time. The annuity required to accumulate $50,000 under these conditions is only $238.89. "If the annual depreciation charge is set aside," says the writer, invested in interest-bearing deposits and the interest is annually reinvested, the investment is recovered within a much shorter period.

Abstract The article discusses about a message that was delivered during a speech by the president of American Institute of Accountants W.H. West. According to West, the Institute must be, of necessity, and of its on volition, interested in the work that peoples are doing for among the fundamental purposes of the Institution are two, the advancement of the science of accountancy and the development and improvement of education in accountancy. The extent to which people are living up to this desire is another matter. In this committee they have a very definite and good working contact with the Association. West is also proud about the library that the accountants have in their possession. It is not very easy for the man who is not in the City of New York to avail himself the library of the Institute. The Committee on Endowment, who administer the affairs of the library have given instructions to librarians to acquire every publication, every book, every pamphlet, every article that is written on accountancy or related subjects and place them on the shelves so that they might be available. This means that with the system of indexing by subject, author, publication, etc. the matters are readily able to find anything that is published which one might ask for.

Abstract When fixed assets are scrapped there is a possible loss to the owners in that costs unrecovered through depreciation charges made during the life of the asset plus cost of demolition may be greater than the salvage value. In order that there may be as few factors as possible with which to deal, it will be assumed in this study that salvage values exceed the cost of demolition, with the result that abandonment losses may be regarded, for all practical purposes, as arising from the excess of unrecovered costs over net scrap value. The causes of abandonment may be classified into three groups, 1. physical factors, or wear and tear; 2. accidents; and 3. functional factors, or obsolescence and inadequacy. These causes of abandonment must be kept in mind when considering the incidence of abandonment losses. This study will be limited to such losses as they apply to fixed tangible assets. Machinery and buildings will be taken as representative of this group. In most cases the principal factor entering into an abandonment loss would be the item of unrecovered cost of the old building or machine.

Abstract Many writers insist that accounting principles are fairly well standardized but a brief scrutiny of a few presumably representative publications leads to the belief that even a fair degree of standardization has not as yet been attained. A most interesting statement was noticed, for example, in a book bearing a 1925 copyright to the effect that cost of manufacture in no way is concerned with the in-process inventory either as of the beginning of the fiscal period or of its end. Moat cost systems fail because the distribution of overhead is at fault. But the situation cannot be improved to an appreciable extent by general suggestions in as much as fixed rules are impossible. In any calculation related to manufacturing expense the ultimate object is to apply such cost to the goods being produced and this application should proceed in a direct a manner as possible under the existing circumstances. The method of direct changes having been applied a fully as conditions justify, the remaining portion of cost must be allocated somehow and in the nature of the case the distribution of this balance is bound to be accomplished on a more or less arbitrary basis.