Knowledge that Transforms

Abstract The article focuses on two points of view concerning the cost categories relevant to income measurement. The ultimate conclusion of the argument is that the fixed costs of production are costs without service potential since their incurrence in one period has no effect on whether they will be incurred in the future. Variable production costs on the other hand do have service potential since their incurrence today will overcome the need for their incurrence in the future. The essence of the argument seems to be contained in the idea that the only costs, which will be reduced in the future because they are incurred today, are variable costs since the fixed costs will remain the same with or without the production of goods, which are included in the inventory. In other words, the value of the inventory is determined only by the extra costs occasioned by producing the inventory. These costs are variable costs of production since the fixed costs of production would be the same with or without the production of the inventory. The idea of opportunity costs is certainly much broader in its possible impact on accounting theory than its position in the Sorter-Horngren thesis of "relevant costing."

Reviews the book "Elements of Financial Administration," by John L. O'Donnell and Milton S. Goldberg.

Abstract The article presents information on interest formulae. Several subject areas in accounting require students to employ compound interest calculations: investments, bond issuances and refundings, certain depreciation methods and more recently, the capital-budgeting problems. It would be the exceptional course where all these diverse issues were discussed; accordingly, it seems appropriate to arm the student with a schema easily leaned and almost unforgettable in lieu of several formulae cluttered with negative exponents and unmeaningful symbols. Such a device appears initially as shown in the diagram, in which the four quadrants represent one of the well known "Tables" or categories of problems. The vertical dividing line separates augmentative or "forward looking" problems (amount of) on the right from diminishing or "backward looking" (present value of) problems on the left. The horizontal dividing line separates single sums, on the top, from series of sums (annuities) on the bottom. All symbols are mnemonics, capital letters are employed only below the horizontal dividing line.

Reviews four volume of the book "Accountant's Encyclopedia."

Abstract The article determines the relationship between recognition of revenue and measurement of revenue. It has been stated that in accounting for revenue, the two central questions are the timing of revenue recognition and the determination of amount. This statement apparently implies that revenue will never be recognized before the amount can be determined but, under certain conditions, revenue will not be recognized even when the amounts can be accurately determined. The recording procedure is followed normally, not because there is difficulty in measuring revenue accurately but because it is often not possible to accurately estimate the expenses to be incurred from date of contract until final collection is made. Thus, revenue realization is made dependent upon income realization. The statement since it indicate that the goal of accounting is to reflect accurately entity economic activity as it takes place, in order to best serve the needs of statement users, might be interpreted as suggesting that the recognition of revenue should be considered a function of measurement, rather than a central question in accounting for revenue.

Abstract The article presents information on accounting curriculum. In the past several years, reform of the collegiate curriculum in business administration has developed into a modern Crusade. The acknowledged enemy is stultifying specialization; the sanctioned goal, a liberal education. Unfortunately, as in most such movements, the participants have often disagreed over just what or who the enemy is, as well as the shortest and safest route to the objective, which is only vaguely defined. As a result, more than a little confusion has attended our deliberations on a worth-while cause. Due to the necessary lack of precision in the sciences dealing with human conduct, an inductive, empirical approach to the problem is impossible. Instead, proposals for changing the old order have had to make the best of fragmentary factual data and theories from educational psychology. In a few cases ethical considerations have been introduced, despite the extreme hazards involved. The arguments of the innovators often fail to carry their conclusions. Only time can finally clarify all the issues involved and judge the adequacy and wisdom of the many changes which have been frequently proposed and occasionally adopted.

Reviews the book "CPA Coaching Course," vol. 1 and 2, 2nd ed., by Henry T. Chamberlain and Robert A. Meier.

Abstract The article presents information on the Truth-in-Lending Bill. This bill would have required merchants to post on each article offered for sale on time, the simple annual interest rate at which the time price is figured, along with related information such as the cash price, the downpayment and the finance or interest charge in dollars. Similarly, a money lender would have been required to disclose the simple annual interest rate at which a loan is offered, as well as the interest charge in dollars. The first step would be to include instructions, covering an equal-installment time transaction. A second step would be to give credit vendors a set of alternative instructions on how the equivalent annual interest rate might be computed directly from the amount to be financed or beginning balance (cash price minus downpayment) without computing an average balance. All time merchants would not be expected to understand the arithmetic involved in the alternative method. A third step might be to include in the bill a table from which credit vendors could find the equivalent annual interest rate for an equal monthly installment transaction after the finance.

Abstract The article examines the concept of relevant costing for income measurement and evaluates its merits as a generally accepted concept guiding the reporting to the external users of financial data. Accounting is primarily concerned with providing interested parties with the most useful information possible about the financial activities of a specific enterprise. The reports evolving from the accounting process are useful in the conservation, increase and effective use of the material resources of the enterprise. In this role accounting finds itself in the awkward position of having to provide useful information to many different users to be used for many different purposes. One of the most recent concepts to be set forth as a guide in reporting to the external users of financial statements is relevant costing. Relevant costing has been proposed as an addition to generally accepted accounting concepts for inventory evaluation in published financial statements. The proposal of relevant costing should be met by a careful analysis of the theory underlying the concept. If this new concept is theoretically sound, the accounting profession should consider it as an addition to acceptable accounting.

Abstract Under the entity concept, alternative accounting procedures are designed to permit a corporation to change its strategy for survival in the light of its economic and financial outlook. To this extent alternative accounting procedures have financial implications. In as much as the funds statement is a report of a corporation's financial operations, it is argued that all income determinants that are subject to alternative treatment need be included in the funds statement on the strength of their having financial implications. This argument is submitted as the reason why some non-fund adjustments receive prominent attention in funds statement preparation and why others do not.