Knowledge that Transforms

Several surveys of inventory practices have been made. The N.A.C.A. Bulletin of March, 1937, showed that 87% of 197 companies used the rule of cost or market whichever is lower for raw materials in their balance sheets. A report of February 1938 by the National Industrial Conference Board analyzed 916 companies. The rule was applied to raw materials in 63% of the cases, to goods in process in 38% and to furnished goods in 40% of the cases. The research department of the American Institute of Accountants examined 500 annual reports for 1939. The figures tabulated in The Journal of Accountancy for October 1940 show that 56% followed this rule "or variations thereof." These surveys as samples of practice show that the rule is in general use. But a rule may be widely useful in business without having the character necessary to make it a fundamental proposition of accounting. If we wish to search out the character of this rule, if we would like to determine whether it is a convenient and expedient rule of thumb or a basic accounting idea, we might begin by looking up its ancestry.

The article discusses the basis for accounting principles. The concept of a government of law as contrasted with a government of men is one of the best expressions of the role of principles in human affairs. However, this familiar legal dictum refers to a highly specialized application of principles. It assumes a systematized body of law which applies only to those relations between human beings which are regulated by the authority of a politically organized society. At the back of any such system of law lie general principles which were formulated so early in the evolution of human society that we cannot determine their origins. These general conceptions or principles serve as standards for the judgment of human conduct. Some of them are justice, fairness, truth, kindness, friendliness and beauty. There are many of them. They are so general in character that they defy exact definition. Systems of law and types of government come and go; the things which men believe to be just and beautiful change, but these general conceptions persist from age to age.

Reviews the book "New York Corporation Laws, 1941."

The article comments on the paper "An Introduction to Corporate Accounting Standards," by W.A. Paton and A.C. Littleton. The work attempts to build a coherent structure on a philosophical foundation, rather than to discover any coherence in the field of accounting as it is. This savors of thirteenth century science, when conclusions were derived from the application of logic to classical preconceptions, and when recourse to the laboratory was beneath the dignity of scientists. The predominantly deductive approach carries with it the temptation to leave out or deny what ever may conflict with conclusions. Not only does this monograph limit itself to corporation accounting of income but it seems to be mainly preoccupied with manufacturing concerns. Costs attach to products sold, of which more might be said. Contractual interest is relegated to the status of dividends, which statement is good for plenty of argument. And speaking of honest men, it seems that the authors of this monograph have a profound distrust of management, even though they emphasize that a chief purpose of accounting is to serve and represent corporate management.

Reviews the book "Fundamentals of Accounting," by Hiram T. Scovill and C.A. Moyer.

Reviews the book "One Hundred Short Problems in Corporation Finance," by Herbert E. Dougall and Harold W. Torgerson.

Reviews the book "Accounting Principles and Procedure: Municipal Accounting," by Charles H. Langer.

The article focuses on repairs and replacements concerning depreciation policy. Accountants writing in the field of depreciation, particularly with regard to repairs, renewals, replacements, betterments, etc., have placed what seems to the author undue emphasis on the physical and productive aspects of the problem. Such criteria for accounting procedures do not offer a rational basis for the solution of many accounting difficulties which arise in this field. There are cases, no doubt, in which the replacing of a simple rivet or bolt will increase the productivity of a complicated machine from zero to one hundred per cent. Moreover, the fact that an "extraordinary" repair will probably increase the service life of the entire machine or make the unit perform more efficiently, while of critical importance in guiding the management in reaching the decision to make the change, ordinarily does not constitute a rational basis for determining whether the expenditure should be taken to operations in the period of incurrment or deferred to future operations.

The distinction between realized and unrealized income is a familiar one to accountants. The distinction in fact is such a vital one that income which is not realized is not generally considered to be income at all. At the present time the problem of income is more in the foreground of the accountant's horizon than ever before. In view of the immediate significance of income it seems strange that such a crucial question as the test of realization should so generally have escaped critical discussion. The test of realization most generally applied is that of sale. This is a convenient test which is readily understood in the great majority of cases by most people concerned. However in view of the great importance attached to the test and of the absurdities which it causes in a few cases, a study of the sale as the dominant criterion for income realization should prove fruitful. While the sale is a convenient rule-of-thumb test, in some ways it represents a rather low stage of development of a streamlined concept of income.

Research into many important problems requires an understanding of both economics and accounting. It cannot be supposed that a single course in accounting will provide an adequate background for all problems therefore accounting in the graduate program of the social science student may be made a part of the course. The function of such a course would be an exposition of the basic principles of accounting and as far as possible an attempt would be made to explore some of the similarities and differences between economics and accounting. Accounting has a limited appeal to students of history, sociology, and political science. Most of those enrolling in the course will be students of economics. Of these the greater part will already have had sufficient background to give them an insight and interest in the problems of economics and accounting not uniformly characteristic of sophomores and juniors. Most of them will already have had courses in money and banking, corporation finance investments, marketing, and statistics. In addition some understanding of theory may be expected.