Knowledge that Transforms

Abstract Serious consideration should be given to developing an operational substitute for historical cost-revenue realization. For all its certainty at the data-gathering level, conventional accounting has glaring weaknesses. The accountant is continually faced with problems of inventory valuation and long-lived-asset valuation that seem no less difficult than would be the problem of finding individual replacement costs. Accountants complain of the non-uniformity of inventory valuation methods. But a proper selection of a method requires a look toward the future toward that stream of net receipts. For assets owe their value to an ability to generate such a stream. Any attempt by accountants to impose one inventory method on all firms would create artificialities, because such a solution would ignore the differences in the time-shapes of future net receipts streams of different companies. A refurbishing more fundamental than a mere narrowing of inventory-valuation methods is needed. Introduction of replacement cost may not be the answer, but it is a candidates Conventional accounting should continue to be studied for possible improvements within the existing framework.

Reviews the book "Monatt's Tax Atlas--1962," by Samuel M. Monatt.

Abstract Some of the most controversial areas in accounting, direct costing, selection of inventory valuation methods, lower of cost or market, capitalization of research and other non-manufacturing costs-revolve around a central problem that permeates theory and practice. It is the asset versus expense problem that must be resolved on a most fundamental level before hoping to find answers to specific accounting controversies. In this article the problem is defined and the assumptions, that have been made by accountants in dealing with this problem are examined. Further assumptions are compared and evaluated in detail. The controversial issues in accounting have led one to quest for a workable assumption about asset valuation that will bring convincing and universally applicable answers to the problem of asset expiration. One believe that the relevant costing approach is more likely to result in a valid application to accounting practice of the basic accounting concepts. Conventional accounting rules are too often preoccupied with physical form instead of economic substance. The implementation of relevant costing which often result in expensing certain costs that are conventionally capitalized and capitalizing certain costs that are conventionally expensed.

Abstract The profitability of a proposed investment is usually a major factor in deciding whether or not the investment should be undertaken. Since profitability depends on both the amount and the timing of the returns from the investment, it is becoming increasingly recognized that the "discounted cash flow" technique, which takes account of both those factors, is the most appropriate method of assessing profitability. The first step in applying discounted cash-flow to an investment proposal is to convert all the economic data about the proposal into a series of cash flows. Capital expenditures and operating losses are recorded as negative cash flows, operating gains and capital receipts as positive flows. The management of a healthy enterprise will encourage the development of a greater volume of profitable investment proposals than it is able to undertake. In selecting the most attractive of these proposals for implementation, profitability will usually be given considerable weight. Profitability should be assessed by reference to the cut-off rate which represents, under the conditions described, the opportunity cost of funds. Economic choice between mutually exclusive projects should be made by discounting them at the cut-off rate and selecting the project which yields the highest present value. The cut-off rate will be determined by the interaction of management objectives and policies in various fields. The cost of new funds and the interests of existing stockholders should set a floor below which the cut-off rate must not be allowed to fall, but as yet this floor level cannot be defined too precisely.

Abstract The Federal Government Accountants Association (FGAA) needs no introduction to many accountants and auditors. However, since the FGAA has "come of age," it is believed that a few words about its organization, aims, and accomplishments would be timely. The FGAA is a non-profit, professional, and educational organization, incorporated in the District of Columbia, with 34 local chapters located in most major cities in the U.S. There are also four chapters abroad, in Frankfurt, Germany; Tokyo, Japan; Pans, France; and Balboa, Canal Zone. It is an organization of Federal administrative or policy advisory employees with accounting and auditing backgrounds. The Association has several purposes. It aids in the improvement of budgeting, accounting, reporting, and auditing techniques by providing a medium for the free interchange of ideas among accountants and financial management personnel in the Federal service. The complex nature of Governmental affairs creates the need for an Association of this caliber.

Reviews the book "Accounting: The Basis for Business Decisions," by Walter B. Meigs and Charles E. Johnson.

Reviews the book "The Theory and Measurement of Business Income," by Edgar O. Edwards and Philip W. Bell.

Abstract In discussions of techniques of communicating accounting knowledge, one subject that frequently arises is the question of the optimizing size of classes. Some feel that small classes are the only means of effectively teaching accounting. Others feel that large classes can be just as effectual, and are considerably less expensive. The question is certainly an interesting one, and it is one which deserves study in these times of rapidly increasing enrollments. As might be expected, a vast majority of both teachers and students exhibited a preference for small elementary accounting classes. A considerable number of teachers could be effective under certain conditions, even though they would not be as effective as small classes. Those schools which had experience with large classes were generally more optimistic about them than those who had no experience. Both personal experience and questionnaire inquiries of teachers and students indicate that small classes are preferable to large ones from a pedagogical standpoint. Thus, given adequate financial resources and adequate staff, the decision between the two is obvious. In the absence of either of these conditions, there are some indications that large classes may be effectual means of teaching accounting if there are good physical facilities, full use of visual aids and laboratories of about 25 students where individual attention may be received.

Abstract In economics, business income is defined as the maximum amount that the firm can distribute as dividends and still be as well off at the end of the period as at the beginning. To be as well off economically, a firm must maintain intact the present value of the expected future net receipts of the capital. In measuring business income as the residual from matching revenue against costs consumed, the accountant must value all assets on the basis of unabsorbed original money costs. The differences between the accountant's income statement and the economist's income statement are that the former includes only realized income while the latter includes both realized and unrealized income, and the former does not include gains and losses due to price level changes while the latter does. In a world where everything changes from time to time and nothing stands still, the three basic issues of accretion versus realization as the criterion for income recognition, inclusion versus exclusion of unexpected gain, and real income versus money income, will continue. Hence, accounting income and economic income will never be in agreement.

Reviews the book "Montgomery's Federal Taxes," 38th ed.