Knowledge that Transforms

Abstract For too many years accounting by governmental bodies has been looked on as a necessary evil; one whose contribution was limited to a historical record of each transaction and to approving obligating documents when funds were available. Techniques of financial control have only recently been used to any extent. There are thousands of governmental units that are not now using the better management methods. The greater use of accounting data in planning and control may come as a surprise to some familiar only with the more traditional role of accounting in government. Greater awareness and acceptance of the need for variable patterns of accounting compatible with assignments of managerial responsibility and the type of operation being conducted represents a maturing of governmental accounting. Earlier, budgetary ceilings on available cash caused attention to be directed only to cash controls, while control of operations and other available resources was minimized or non-existent.

Abstract The article highlights that there is a need to study the concept and process related with education for business. It presents an education program of educational enterprise Ford Foundation. The foundation has made grants principally to support the work of faculty members, research personnel, and students in colleges, universities, and research institutions. It runs a program in economic development and administration. The program includes invitation to leading non-academic men. From these non-academicians the foundation solicit advice on the directions in which the program has been moving and on the problems to which they believe the foundation should give future attention. In one of the recent meetings one executive suggested that the training for business given on the campus, particularly at the undergraduate level, tends to spoil students for business. The executive said that college students should get broader, more liberal educational background. The business firms, he added, is a better place to learn the "how-to-do-it" techniques. It was felt that there is a need for systematic study of the basis on which businessmen actually hire and promote within their organizations if one is to develop a workable environment.

Abstract In recent years the lease has grown in popularity as a device lot financing the acquisition of productive property. The lease is a form of debt that does not appear on the balance sheet under current accounting practices. The omission from the balance sheet of the lessee's liability under long-term leases results in an understatement of the debt position of the firm and makes it more difficult to compare the financial position of firms that choose different means of asset financing. There is, fortunately, a sound basis for capitalizing the lease on the balance sheet. When the lessee enters into a lease, he obtains an asset and assumes a liability. The amount of the liability is the present worth of lessee's future payments under the lease, discounted at a rate of interest equal to the effective percentage yield-to-maturity cost of the lease financing device. The full value of the asset depends on how effectively the lessee puts the property to work during the period of the lease, but its cost is the sum that is given up in exchange for user rights. This cost can be approximated by subtracting from the alternative purchase price of the property the present worth of the end-of- lease ownership value. This net amount is also equal to the capitalized amount of the lessee's liability under the lease, so that the accounting entry to record the negotiation of a lease fits logically and neatly into the double entry bookkeeping system. These asset and liability values can then be amortized over the term of the lease in such a way as to leave net reported profit unchanged, but with a portion of the annul rental payment diverted to interest expense from the operating cost section of the income statement. It is maintained in this paper that this method of lease capitalization and amortization is entirely consistent with existing accounting principles for the valuation of assets and liabilities.

Reviews the book "Office Equipment: Buy or Rent?," by Robert N. Anthony and Samuel Schwartz.

Reviews the book "Accounting Reports for Management," Ronello B. Lewis.

Abstract The article presents a question paper prepared by the Board of Examiners of the American Institute of Certified Public Accountants and was presented as the first half of the examination in accounting practice on November 6, 1957. The candidates were required to solve all problems in four and a half hours. The total weight assigned to this section of the examination was 50 points and the examiners point out that the suggested time allowances are approximately proportional to the point value of the various problems. The time allowances for doing different questions are also suggested. One of the problems was based on 3 partners who joined with initial investment of $20,000, $30,000 and $50,000. There was no provision in their original agreement as to sharing profits, but the agreement did provide that each partner would be entitled to $3,000 salary as a distribution of profits. At the end of the financial year, it is required to review their books and records and to advise them of their proper capital balances.

Reviews the book "Cost Accounting and Control," by Cecil Gillespie.

Reviews the book "International Trade: Goods, People and Ideas," by Wendell C. Gordon.

Abstract The primary reason for analyzing quantitative data is to secure clues as to future performance. The analyst's task is one of comparison of changing overall economic conditions and of specific company financial data through the years. Analysts look for trends and changes in major items. Thus financial reports should be oriented toward facilitating comparisons. The article "Disclosure: 1957," published in the previous issue of The Accounting Review emphasized that financial analysts are the major consumers of the published data issued by management with the aid of accountants. The drafters of published reports must remember that the analyst is faced with the task of comparison of results between years and between similar firms. The desires sufficient information so that he may carry out his task of comparison without the need of making arbitrary assumptions concerning a firm's accounting procedures and policies. Moreover, from the viewpoint of the security analyst the income statement dwarfs the balance sheet in importance. Future earning power is the major consideration. Past earnings performance is dissected in order to delineate trends.

Abstract Forces, both within the accounting profession and without, are constantly subjecting the accountant to ever-increasing pressures in an attempt to induce him to change some of his basic principles. Many of these forces can be attributed, either directly or indirectly to economists. It is the writer's belief that accounting and economics are more closely related and thus more interdependent than is commonly thought. It is also his belief that if the accountant and the economist were both more aware of their relationship and interdependency, both might derive mutual benefit there-from. Both accounting and economics are concerned with property and with human activities relating to the production, exchange, and consumption of this property. Generally speaking it is the point of view that differentiates one from the other. Whereas economics treats a society as a whole, of wealth in general, of the wants of people, and the satisfaction of those wants; accounting treats the individual units in society, the property of each unit, the requirements of each unit, and the efforts and accomplishments of each unit.