Knowledge that Transforms

Two weeks at this pace is a grueling experience for students and instructors alike. Nevertheless, every applicant who has ever started the course has stayed with it until the end. It will be noticed that the course is concluded with consolidation. Although this may not be the most appropriate sequence it has been deliberately placed at the end because it has been found that most students have a very limited background in this area and are anxious to learn as much as they can about it. It has also been found that if by any chance a student has become over-confident during the sessions, a couple of days on Consolidations will dispel any conceited notions. Despite the intensive nature of the course, two weeks are hardly enough time to prepare adequately for the CPA examinations. It is emphasized that these two weeks are only a beginning. The program is simply an attempt to reorient the student who has lost the habit of systematic study to force him to discipline himself to carry on a program of preparation for the exam after the course has terminated, and to point out specific weaknesses in his background.

Reviews the book "Cost Administration cases and Notes," by Earl D. Benett.

Reviews the book "Business Management of Local School Systems," by Stephen J. Knezlevich and John Guy Fowlkes.

Reviews the book "The Principles of Audit Surveillance," by Harvey Cardwell.

This article focuses on an accounting course for majors and non-majors. The standard elementary accounting text is designed to suit the needs of accounting majors only. Such a text necessarily contains much technical material and is designed for two 3-credit courses covering one academic year. Hence at institutions where only a standard course is offered, many students with a less than professional interest in accounting are probably discouraged from taking any accounting courses. The standard text starts with the assumption that the student has no knowledge of accounting and very little knowledge of business practice. It takes him through as much theoretical and practical material as can be fitted into that period of time, theory and practice being blended or alternated. Neither can be properly studied without the other. A student who really wants merely an introduction to accounting and business practice must, therefore, ordinarily take a full year course. This problem points up the need for a one year course, the first semester of which will serve as a survey course for the non-accountants as well as an introductory course for the accounting major.

An essential phase of a rational capital budgeting process concerns appraising the profitability potentials of recognized opportunities for capital investment. Typically, management must decide upon an effective rationing of capital among the numerous capital proposals recommended to it for adoption. Profitability considerations are manifestly important in such decisions. While the notion of rate of return on investment is commonplace, the term is widely employed to describe a variety of historical and projected mathematical relationships between earnings and investment. In this paper, rate of return refers to that rate of interest which equates through time a project's anticipated cash flows with the initial capital outlay required to adopt rate of return determination explicitly considers all three determinants of a proposal's financial worth and ignores external considerations such as the cost of the capital required to adopt the proposal. Via the discounting procedure, the time value of money is taken into account. A proposal's expected profitability is ex- pressed in a single figure representing the average annual rate of compound interest at which the project's initial investment is expected to be recovered through cash flow generation.

Reviews the book "Practical Controllership," by David R. Anderson and Leo A. Schmtdt.

This article presents question and answer asked in the auditing section of the Uniform Certified Public Accountant examination on November 3, 1960. One question stated that Star Wholesale Co. is a wholesaler selling merchandise to local hardware and paint stores. The Coaton Paint Co. has sold its outdoor paint products to Star Wholesale Co. for years on regular terms. The candidates have to make adjustment of balance sheet account and recommend proper audit procedures. The answer to this question is, the auditor discovered the unsatisfactory control over consigned goods before the balance sheet date, he can and should request the client to segregate the consigned stock before taking the annual physical inventory. Verification of the consigned goods on hand by physical count is an essential step in determining the amount advanced to the consignor and the proper amounts for inventory and accounts payable. Another question is, in most medium-sized and large audits, it is customary for the auditor to select for detailed examination a series of items entered in the voucher register. The selection is from a period other than at year end. Answer to this question is, in medium-sized and large audits, primary emphasis is placed upon evaluation of internal controls rather than verification of any substantial portion of individual items in the accounts.

In the article, the author presents a critical appreciation of the article "A technique to Adjust Financial Statement Data for Changing Price Levels," by Richard A. Ridilla, published in the October 1960 issue of the journal "The Accounting Review." This article was an attribute an article by the author published in the July 1958 issue of the journal, on the treatment of the problem of income determination during periods of changing price levels. However, the author believes that there has been a critical difference between his and Ridilla's application of this idea. The author states that he would pass into current economic income all improvement occurring during the fiscal period, regardless of whether such improvement was realized through the revenue cycle. On the contrary, Ridilla would retain the realization concept but would, through the balance sheet approach, effect a charge to income for depreciation of fixed assets based on their current replacement value and would, as a corollary, effect a credit to income for any long-term indebtedness redeemed during the year. The author submits that Ridilla's emphatic and unequivocal conclusion is unwarranted, only by the presumption of the validity and applicability of the realization concept and not by any basic rule of reason.

It is generally agreed that the purpose of any financial statement is to present useful information for decision-making by its readers. The growing popularity of the sources and applications of funds statement (hereafter referred to as the funds statement) indicates that this report presents information which is not readily found in the typical income statement or balance sheet. In meeting this need, accountants should determine what information is desired by readers of funds statements and then should design an appropriate report. A contemporary accounting scholar, Louis Goldberg. strongly dissented from this acceptance in 1951, stating that the shift in emphasis has been in the wrong direction and that the earlier concepts were more cogent, more satisfying and more rational. A shift out of cash into inventories, voluntary, or vice versa, might he one of the most significant financial changes during a period. Similarly a large decline in notes payable and increase in open accounts, or vice versa, may foretell an important change in financial or credit policy. These and analogous types of changes within working capital are not revealed in the orthodox statement.