Knowledge that Transforms

Reviews the book "University and College Accounting," by Lloyd Morey.

Doubtless the cash account is one of the oldest of accounts. Business operations have revolved round the cash account from the very beginning of business. It follows that the technique of accounting and the operation of business organizations can hardly hope to get away from so fundamental concept. One cannot expect the statement of cash receipts and cash reimbursements to be displaced even if all businesses were to be placed on the accrual basis of accounting. One might well question the accuracy of the small business man who regards his bank balance as his indicator of profits, but one cannot too quickly criticize his judgments on fundamentals. Perhaps the accrual basis of accounting is partly to blame for the shift of emphasis from the funds involved to the net income produced. At any rate, it seems that we have gone too far in leaving out of the picture the significance of the shift in funds which occurs with business operations. This statement applies almost equally to textbooks on accounting and to the work of auditors and interpretative accountants. That one has failed to appreciate the fact that shift of funds in a business is still of major importance, is evidenced both by the relative newness of the Funds-Provided-and-Their-Application Statement and the lack of its wide use and development.

Anyone who indulges in a mental résumé of major topics of accounting discussion for recent years would probably emerge with one or the other of two convictions, either one is rapidly drifting away from moorings of older conceptions of basic elements of accountancy, or that one is growing with considerable rapidity in new directions. The word capital for example, has long been used as a term to indicate the investment brought into a business by proprietory interests. It was distinctly associated with contribution. Statutory regulations concerning limited liability corporations further emphasized this concept by requiring that the proposed sum of capital be definitely stated from the very inception of the organization, that it be fully paid in and that it be maintained intact against the encroachment of dividends. Capital stock was considered by legislatures and courts as representing owners' contribution, the amount dedicated to purposes of the business by those controlling the concern's affairs and enjoying residual profits, if any. Is accounting thought drifting away from this and other basic conceptions, or is it is merely growing out of garments in which it has for so long been clothed? No-par stock has brought occasional presentations of financial structures in which original contribution was divided between capital stock and initial surplus.

Reviews the book "New York Laws Affecting Business Corporations," 11th ed.

Reviews the book "The Menace of Overproduction," by Scoville Hamlin.

The various revenue acts of the United States have neither included nor excluded charitable and similar contributions by corporations as deductible items. The Commissioner and the courts have ruled that they are not deductible. But the laws have made the ordinary and necessary of conducting a business, deductible, and among these expenses the Commissioner, the courts, and the Board of Tax Appeals have included certain contributions by corporations that appeared to have been made with the expectation that direct and immediate benefits would accrue to the corporations as a result of the contributions. Contributions are made by business men either from motives of philanthropy or because they believe that certain benefits will accrue there from to their business. In the case of the individual contributor, both types of contributions should be allowed as deductions. In the case of the corporation, the second type should properly be allowed in practically all cases, in as much as the judgment of the corporation's officials as to the benefits likely to be secured is presumed to be as reliable as that of the Commissioner or his agents.

Reviews the book "Corporation Accounting," by William T. Sunley and Paul W. Pinkerton.

Reviews various books on accounting. "Tendenzen zur Aussonderung von Vermögenswertänderungen in Betriebswirtschaftslehre, Wirtschaftspraxis und Steuerrecht," by Henerich Horn; "Die nennwetlose Aktie," by Werner Rusche; Erfassung und Verrechnung der Gemeinskosten in der Unternehmung," by Frits Hensel.

Reviews the book "Economics of Accountancy," by John B. Cunning.

Methods of the usual, present, orthodox type are unstabilized because they ignore all lack of uniformity in the value content of the measuring-unit in which the depreciation is expressed. If, for instance, a building cost $50,000 in 1910 and had an expected life of twenty years, with no final scrap value, the depreciation, according to the customary, straight-line method would be the unstabilized one of $2,500 for each of the twenty years regardless of whether, as thus stated in the dollar value of 1910, it was equivalent to $2,500 in the average general price level of each of such twenty pars. Orthodox calculation of depreciation thus assumes that the original cost, when distributed as depreciation over subsequent periods, will continue to have the same economic significance as it had when incurred-or, in other words, that the monetary standard of measurement remains stable in value. The chief merit of such an unstabilised depreciation method is the greater ease in theory and application resulting from the assumption of a higher degree of simplicity in the measurement of facts than is actually there.