Knowledge that Transforms

Reviews the book "Intermediate Accounting--Comprehensive Volume," by W.E. Karrenbrock and Harry Simons.

Abstract The article focuses on the entity concept in accounting. Of necessity accounting is practiced within a framework of basic assumptions. These condition in various manner the resulting product. Holding primary rank in the framework of assumptions is the view that the business undertaking is an entity. As commonly set forth the entity view holds the business enterprise to be an institution in its own right, separate and distinct from the parties who furnish the funds, which make possible its operation. Strongest support for the institution in its own right assumption is held to exist in the case of the corporation to which the state grants the right to hold legal title to property, which the state taxes as an individual, and which holds the legal right to sue or be sued. The accounting concept of entity does not wholly rest upon the existence of legal entity, however. The entity point of view is held to be equally applicable to sole proprietorships and partnerships which lack the characteristic of legal entity. In the case of consolidated statements, also, the entity whose status and whose success or failure are depicted is an economic entity whose scope often encompasses numerous separate legal entities.

Reviews the book "Fundamentals of Accounting," 3rd ed., by Perry Mason and Sidney Davidson.

Reviews the book "The Uneasy Case for Progressive Taxation," by Walter J. Blum and Harry Kalven.

Reviews the book "Accounting Teacher's Guide."

Abstract With the passage of the original Internal Revenue Code in 1913, the Congress recognized that it would be possible for individuals to avoid a large portion of the contemplated personal income taxes by forming a corporation and allowing the earnings to accumulate within the corporation. This prompted the inclusion of Section II-A (2) in the act of 1913, which placed a penalty upon stockholders if it was determined that the corporate form of organization was being used to avoid surtaxes. Since 1913, the major development in the Section has been the change in penalty from one imposed upon the stockholders to imposition upon the corporation. From time to time, there have been minor changes in the wording of the act, the number of the section, and the penalty percentages to be applied. None of these has caused any great change and the current Section 102, therefore, gives the basic ideas of the section from its inception. Further hints of policy are gained by considering the Treasury Decisions which are to be used as guides by the commissioners. Treasury Decision 4914, issued in 1939, gave instructions to give close attention to several classes of firms to determine the applicability of Section 102.

Reviews the book "Intermediate Accounting," by Arthur W. Holmes and Robert A. Meier.

Abstract The study of this article purports to show how the annual report of a company can be analyzed in order to determine the sources of additions to net worth and the disposition of these additions in a general way. It is necessary that the company will include in its annual report a comparative balance sheet and statement showing changes in retained earnings or surplus, either contained as a part of the balance sheet or as a separate statement. The principle of accounting for the change in net worth to show the income increments over a period of time is used as a basis for analyzing the annual reports. This study departs from the idea of attempting to determine the source and application of funds or the change in net working capital, as it is assumed that these statements require access to accounting records of the firm for the purpose of analyzing changes in depreciation reserves and adjustments to surplus. Furthermore, as the size of the firm increases, the individual stockholder becomes more and more discouraged in trying to understand the annual reports.

Abstract It seems evident that more than seventy-five years ago some men in large cities called themselves public accountants. They audited or "checked up" books with the object mainly of discovering or preventing irregularities rather than for constructive work, although systems work was undertaken. Somewhat later the foreign shareholders and bondholders of a number of large enterprises, mainly but not exclusively railroads, desired that the accounts should be audited and sent out auditors front England to perform such services. This practice led to the opening of offices in the United States by English and Scotch auditors; some of the early firms were established in this way. American accountants gave increasing competition. The earliest accounting organization, The American Association, was formed with the purpose of raising the professional standards and "for social and benefit purposes." Early attempts to elevate the profession by means of collegiate instruction in accounting for those wishing to enter the profession were unsuccessful. Wharton's School of Finance and Economy, however, was formed in Philadelphia, and accounting was included in its curriculum. The desire on the part of the members of the profession to receive recognition was carried to the New York State Board of Regents. With the Board's willingness to administer examinations an attempt was made to secure legal recognition from the state. The first attempt in 1895 to get legislation for the legal recognition of Certified Public Accountants failed, but during the period to follow the public accountants continued their efforts with considerable success.

Abstract This article comments on inventory pricing and changes in price levels. Ideally, the measurement of accounting profit involves the matching precisely of the identified costs of specific units of product with the sales revenues derived there from. Secondly, where conditions are such that precise matching of identified costs with revenues is impracticable, identified cost matching may be simulated by the adoption of an assumed flow of costs. Also, a flow assumption can be realistic, in that it reflects the dominant characteristics of the actual flow of goods; thus it may reflect an actual dominance of first-in, first-out, average, or last-in, first-out movement. A flow assumption can be artificial, on the other hand, in that it premises a flow of costs that is clearly in contrast with actual physical movement. However, the periodic income of a business enterprise is computed by deducting from the revenues of the period the costs which are properly associated with those revenues. In the case of certain costs, for example sales commissions, the relationship to the revenues of a period is quite direct and the matching process is accomplished with a minimum of uncertainty.