Knowledge that Transforms

The article presents questions and answers for the examination in theory of accounts of the November, 1959, Uniform Certified Public Accountants examination. The first question was related to depreciation of assets and its objectives. The answer to the question is given. Accounting for depreciation is the process of allocating the cost of plant assets of limited life over their estimated useful lives. The chief objective is to charge against each period's revenue its fair share of the depreciable portion of the cost of such assets. This portion is original cost minus any expected scrap or trade-in value. The time period is affected by obsolescence to the extent predictable, by accidents, by repair and maintenance policy, by extent of asset usage, and other factors. Recording port assets at cost less accumulated depreciation on the balance sheet. Decreasing charge methods such as sum-of-year's-digits or fixed per cent on diminishing base are consistent with this objective. Appropriateness of the selection depends on circumstances of asset use.

Reviews the book "C.P.A. Problems Complete Review Course," by Arnold W. Johnson and Evroul S. Germain.

Reviews the book "Executorship Accounts," by E. Bryan Smyth.

Reviews the book "Yardsticks for Industrial Research," by James Brian Quinn.

The word "reserve" has been used to describe a diversified grouping of accounts on the right-hand side of the balance sheet. The various uses and capacities in which the word serves, as well as the many different methods of its creation, have caused perplexity for a long period of time. The ambiguity of the term prompted the Committee on Accounting Procedure of the American Institute of Certified Public Accountants in 1953 to recommend to its members that only certain types of liabilities, known and unknown, be designated as reserves. The Committee on Terminology of the Institute corroborated in the limited use of the term "reserve" with the recommendation that amounts for betterments or plant extensions and for excess cost of replacement of property be included. The conditions surrounding the actual definitive processes make it difficult to draw the line between true reserves and "so-called" reserves although the Institute recommendations to accountants make clear and definite distinctions.

The article focuses on the accounting problems related to reversing entries. The reversing entry results from adjustments of deferred and accrued items. The author presents a test for reversing entries for which excellent results have been obtained. An adjusting entry resulting from a deferred or an accrued item must be reversed if a real account, in the process, is increased in its usual debit or credit manner. In making an adjustment, an asset account is debited, a liability account is credited, or a capital account is credited, that adjusting entry must be reversed, or readjusted. Deferred items result from transactions in which payment has been made, or the money has passed, but has not been completely used by the payer. Despite the fact that the money has passed, it is not properly regarded as an expense of the company, or as income to the company until the next period, or thereafter. Accrued items result from business situations in which payment has not been made, or the money has not passed, as it is not yet due. Despite the fact that the money has not passed, it is properly regarded as an expense of the company, or as income to the company during the current period, or the period under consideration.

The article focuses on continuing education programs initiates by the American Institute of Certified Public Accountants. The author briefly explains the mechanisms with which this program will be developed and administered. materials will be produced in a variety of ways. Some will be produced by hand-picked experts in their specialty fields. These specialists will be drawn from the ranks of practicing public accountants, industrial accountants, and accounting educators. The best person available will be awarded the contract to produce the first draft of the course materials. Other courses will be produced almost exclusively by the technical assistants in the Institute's offices in New York. The proposed course materials will be edited by three to five experts. These reviewers will be drawn primarily from the 74 members comprising the Institute's Advisory Committee on Professional Development. Eight members of the 74-man committee are university professors of accountants. After a set of course materials has been approved by the special committee of reviewers, the course will be given its trial-run under the sole auspices of the Institute. The suggestions for improving the course made by the enrollees at this trial run are incorporated into the revised course materials.

Reviews the book "Sampling in a Nutshell," by Morris James Slonim.

Current auditing standards are not in conflict with the law and are to some extent supported by the law. The personal standards appear to be based on legal concepts recognized by statutory and case law. The field work standards are supported by SEC opinions and by legal decisions with respect to the need for adequate evidence. Reporting standards are in agreement with SEC decisions and rules. The doctrine of lull disclosure finds support in case law and the Securities Acts also. The public accounting profession needs to evaluate existing auditing standards and promulgate revisions which will best serve the interests of the profession and the public which benefits from the services of the profession. Legal concepts should be considered by the profession in making revisions in order to avoid conflict with the law, but should be taken only as indications of minimum performance. In order to serve the public accounting profession better as guides for performing tasks and to serve the law better as criteria for judging the adequacy of the work done by public accountants, standards which are more specific and which go beyond the general statements used today are desirable.

The article presents accounting problems prepared by the Board of Examiners of the American Institute of Certified Public Accountant (CPA) and were presented as the second half of the CPA examination in accounting practice in November 5, 1959. The candidates ere required to solve the problems 1 and 2 and any two of the remaining three problems. The first problem is related to preparation of cost study to determine economical feasibility of a publishing company. The second question is related to deriving reasons for the changes in the working capital of a company from its balance sheet. It requires application of funds statement, supported by a schedule of working capital changes and a cash flow statement, supported by a schedule detailing the cash provided or applied by profits or losses from operation. The third problem requires preparation of a schedule of labor production, total and unit costs incurred in production and schedule of detailed material labor and manufacturing costs assigned to the units left in process.