Knowledge that Transforms

Reviews the book "Depreciation, Principles and Application," 3rd ed., by E.A.Saliers.

This article provides guidelines for improving the standard for accountancy laboratories in collegiate schools of business in the U.S. There is frequent and often justified complaint from businessmen that graduates of professional business departments in some of our universities and colleges do not possess the ability to keep a simple set of books. After spending from two to five years in one of these business departments, a graduate may experience a serious setback in confidence if he fails on his first job. No matter where a man finds himself located in the business field, a knowledge of accounting theory will be valuable. However, it requires more than mere "book learning" to understand accounting. In this work one must learn to do by doing. Such is the purpose behind the accounting laboratory method as used in most of our professional schools of business. Equipment is an important element of an efficient accounting laboratory. The present study shows that tables are most satisfactory for problem and practice-set work. A properly equipped laboratory should contain enough steel files or lockers for the purpose of filing completed problems and working materials. In a compulsory system no work is accepted if done away from the workroom, and both finished and unfinished problem material is filed under each student's name.

Reviews the book "Theory and Mechanics of Accounting," by Leo A. Schmidt.

This article presents information on capital gains and losses in accounting. Capital gain has been defined as "profit upon realization of assets otherwise than in the ordinary course of business, this profit being the excess of the proceeds of realization over the cost of the property realized." Accounting makes a careful distinction between realized and unrealized capital increments, the latter generally being designated "appreciation." No matter how capital gain is defined the most significant feature of the transaction is that it does not occur in the ordinary course of business. Another peculiarity of capital gain from the accounting point of view is that it is not recognized until actually realized. The conditions and circumstances which bring about capital losses (realized or unrealized) are various. A change in price levels may be a cause. Obsolescence is frequently associated with capital losses. In the case of security investments, factors related solely to market conditions may be primarily influential. To say that capital losses are always non-recurring and outside the regular fulfillment of the particular function of a business enterprise is hardly accurate because obsolescence and many of the other risks which might result in loss of capital are always present and cannot be disassociated from the purposes of an enterprise.

This article points out the features of "Manual of Water Works Accounting," prepared jointly by the Municipal Finance Officer's Association and the American Water Works Association. Budgetary statements are an essential part of any municipal report That municipal officers have a duty to inform the public that they have complied with the provisions of the budget is now unques- tioned. Finally statistical statements are in some respects as important if not more important for the public than balance sheets or income statements for several reasons: They are easy to understand; they present a mass of valuable information in concise form; they present some evidence of the efficiency with which officials are carrying on operations; and they show trends. Many of the journal entries will be useful to officials who have a good knowledge of accounting but who are not familiar with utility accounting. It is for the benefit of the latter class of officials that some of the more complicated aspects of water works accounting were presented.

Reviews the book "Financial Statement Analysis: Principles and Technique," by John N. Meyer.

A cursory survey of accounting literature reveals that the word "expense" has been given many divergent meanings. Sometimes it is used as though synonymous with cost, that is, as a generic term which has no technical meaning without the addition of qualifying words. More often it is used to refer to cost of services or specifically to those service costs which are incidental to the selling, administrative, and financial aspects of business operation. Another use of the term includes costs assignable to a particular quantity of revenue. In this last sense expense becomes a limiting factor by which gross revenue is reduced to net revenue. It is a determinant of the mount of profit or the element of equity increase. Perhaps in the minds of a majority of accountants the traditional and pragmatic idea of expense as service cost or cost of selling and general administration has been pretty well built up. But as an accounting concept many would agree that expense in the sense of over-all cost of revenue or profit determinant is much more significant than any other usage of the term noted above. It is the concern of this paper to examine the major controversies about the nature, scope, and technical significance of the term as so understood, its relation to other accounting concepts such as costs, losses, revenue charges, surplus charges, etc., and to inquire whether expense, as revenue-cost, is the broadest and the most significant grouping of items affecting profit or income.

This article focuses on governmental accounting education in the U.S. The position of the 1937 Committee on Education of the American Accounting Association appears to have been so widely misunderstood that a brief statement of clarification seems proper. Particularly, the failure of the committee to include governmental accounting in the syllabus, except under the Maximum Program, has been rather sharply criticized. An elaboration of such additional graduate work was not attempted at that time and no further statement has been made since. It was the opinion of the committee, however, that the place of governmental accounting lies somewhere in the senior elective area or in the graduate years. It is hoped that a further development will come through a study of offerings of universities and colleges whose graduates are presumed to have been prepared for the profession of accountancy. A grading, and classifying of curricula of various educational institutions should be undertaken, and the committee doing such work should be widely representative. It would, however, be futile to attempt such a task until the syllabus has been subjected to the most severe criticism.

The article presents a discussion on the application of accounting principles to governmental-accounting practice in the U.S. Problems of governmental accounting may be divided into three groups, first are problems in accounting for transactions of the Federal government and its agencies; second, problems in accounting for affairs of the several states; third, municipal accounting problems and those of other political subdivisions of The U.S. states, such as counties and districts. This article will confine itself to the application of accounting principles to practice only in municipalities and other political subdivisions of states. Fifteen such principles have been set forth by the National Committee on Municipal Accounting as recommendations or suggestions to be followed as a guide in establishing governmental accounting systems. The article concludes that emphasis must be given to the human or personal difficulties involved in making changes in governmental accounts. In order to install a uniform accounting system, it is essential that the legislative body and, at least, the major executives of the city be in sympathy with the project. without cooperation in the budgeting, purchasing, departmental reporting, and even in the departmentalizing of the city, it is difficult to install a system which is based upon the recommended principles.

In this article, the author tries to examine time as a factor in determining debt-paying ability. This consideration has led on to other related problems and considerations, and finally to a certain amount of experimental research in debt payment. It has seemed that in the great majority of cases the focal point of business mortality is the actual or prospective inability of a concern to pay its debts. If this simple hypothesis be accepted it seems that the financial health of a business may be measured in terms of the distance that a concern is from this focal point of mortality. As a corollary it would also seem that definite evidence of financial ill health is indicated when a business is unable to pay its debts when they are due. The author reports that in the great majority of cases even the most rigorous classification of current assets and current liabilities fails to reveal whether a business can actually pay its short-term debts when they are due because it does not indicate whether the realization of assets will be sufficiently rapid to meet the agreed liquidation dates of the liabilities.