Knowledge that Transforms

The Uniform System of Accounts of the Federal Power Commission, which was adopted on June 16, 1936, was the result of a joint effort of the Federal Power Commission and representatives of several state commissions. The principle of original cost constitutes an entirely new conception of plant accounting for public utilities. It is so important to the needs of regulation and so misunderstood by those outside the pale of regulatory realms and so little has been written to explain its philosophy, that perhaps a rather full treatment of what it is and the reasons for its existence may not be altogether inappropriate. The importance of plant accounting for public utilities can hardly be overemphasized. Plant assets constitute about 86% of total assets of all electric utilities in the U.S. Another factor, which goes a long way towards explaining many problems and economic consequences identified with public utilities, is that the annual gross revenues of electric utilities amount, on an average, to only about 18% of the total investment in plant, so that the plant investment turns over about once in five and one-half years.

Reviews the book "Lumber Accounts," by Walter Mucklow.

Financial statements are important tools of the intelligent investor. The investor wishes that more attention be given to substance rather than form in financial statements and in reports to governmental agencies such as the U.S. Securities and Exchange Commission. Accountants should recognize that investors are the principal group interested in published financial statements, and that more attention should be given to completeness rather than technical accuracy, particularly in the income statement. Public accountants are influenced to some extent by the managements of businesses which employ them. Resulting financial statements, then, are compromises to a greater or less degree. A substantial part of corporate capital is supplied by investing stockholders and bondholders. Such investors exercise practically no control over the affairs of the companies involved. If results are not satisfactory to them their alternative is to sell. If the results appear to be attractive their alternative is to buy more. Controlling stockholders dominate the management and are in position to influence management policies in order to protect or improve their commitments.

The article presents the broad front of accounting activity in several sectors where accounting work is moving forward. These sectors may be referred to as the professional field, the field of private finance and industry, the field of public finance, and the educational field. The article discusses the matters common to the whole of accounting work, in fulfilling the purpose of accounting, that is, to exhibit the financial position of a particular unit of activity, and to exhibit the financial results of the particular unit over a length of time. All other purposes may be fairly subsumed under one or the other of these two and considered as auxiliary matters of varying importance according to the time, and place. Accounting provides refined classifications, use of averages, ratios, per unit figures, and cost and budgetary control, as aids to management and other special groups. Diverse as are the phenomena with which accounting deals, its two major objectives predominate and give the entire field a definite unity. In reaching these objectives use is made of a medium of expression, a body of working principles, and a technique.

A very large proportion of those students who do their major work in accounting in colleges and universities ultimately find their way into the accounting departments of industrial, commercial and financial concerns. Many others are ultimately engaged in production, sales and financial activities to which accounting and statistical analysis has a close relationship. In successful training of this group there devolves upon instructional staffs, an important responsibility for training not only in accounting principles but also in methods of collection and use of accounting and statistical data for managerial control purposes. With the importance of this phase of accounting instruction in mind, a round-table discussion was organized at the annual meeting of the American Accounting Association in December 1936, at which representatives of numerous schools were asked to make brief statements pertaining to methods used in their institutions. The author emphasizes on internal control in accounting courses.

Reviews the book "Walton Federal Tax Course," by Charles H. Langer and Harry A. Knautz.

This article presents problems and their solutions prepared by the Board of Examiners of the American Institute of Accountants, which were used in the C.P.A. examinations of thirty- eight States and three Territories on November 18-19, 1937. These problems constitute the first half of the examination in accounting theory and practice and are reproduced by permission. In the preparation of the solutions which follow the problems, the total time allotted has been kept in mind, in the hope that those who find this material of interest will gain some idea of the form and content of papers that may reasonably be expected under examination-room conditions. It also says that other selections from the Institute examinations and from the examinations held elsewhere will be presented in future issues of the journal "Review."

The article focuses on the statement of accounting principles by the American Accounting Association, published in the June 1936 issue of the journal The Accounting Review. The article presents comments in support of the suggested principles. In developing certain principles that would be sound in theory and practical in application, adoption of the best of current practice is involved, but with modifications designed to remove some of the uncertainties and inconsistencies from corporation income statements. Particularly it is sought to eliminate present confusion about the unusual cost or revenue items which sometimes are treated as capital losses or gains, sometimes as adjustments of earned surplus for prior years, and sometimes as current profit and loss charges. It is suggested that all the amortized costs and all the realized gains should be recognized in the income statement of some year, either as special items in the statements for the current year, or through correction and rewriting of the statement for prior years.

This article focuses on bases of valuation in German corporate balance sheets. Acquisition or production cost is prescribed as the maximum value for all fixed assets. The language of the present German Commercial Code is unequivocal on this point. By "acquisition cost" is meant the amount of actual expenditures on the fixed asset up to the moment when it becomes ready for use in operations. Besides the net purchase price this form of cost includes all direct overhead expenses, for instance, transportation costs, insurance premiums, import duties, commissions, cartage expenses, and installation costs. The bookkeeping technique of recording depreciation, in view of the great variety of practices, is not regulated by law, and must, therefore, be determined individually according to the principles of good accounting. The principle of minimum value applies to all current assets. The previous enumeration, as current assets, of securities and other assets which are not permanently required for the business conduct of the company, as well as of merchandise and the company's own shares, is now replaced by reference to the corresponding section of the classification ordinance.

Reviews the book "Insurance and Banking, Examinations and Accounting," by Herbert L. Davis.