Knowledge that Transforms

Reviews the book "Managing for Profit," by C.E. Knoeppel and Edgar G. Seybold.

In government accounting, the two major classes of problems — classification and valuation — are not of the same relative importance as they are in the accounting for private industry. Emphasis swings heavily toward the former group. Reasons are readily perceived. In ascertaining the financial condition of a government, little significance is attributed to the value of its fixed assets, for rarely are they used to secure debt. Future taxing possibilities take their place as security. Furthermore, the operating statements are not concerned with reductions in value of fixed assets, through depreciation or otherwise, except for costing purposes. On the other hand, many restrictions placed on expenditures cause their classification to become more difficult. Hence, while valuation recedes into a minor role, classification moves forward into a peculiarly dominating position. This importance attached to classification is reflected upon the chart of income and expense accounts, the accounting framework used as a guide in classifying.

Reviews the book "La Profession d'Expert-Compatable aux Etats-Unis," by A. Perren.

Reviews two books on finance. "British Corporation Finance, 1775-1850," by G.H. Evans; "The Development of the Business Corporation in England," by Carleton Hunt.

This article presents an analysis of the tentative statement of accounting principles. Most objects are subject to different evaluations. Thus one man may view war as a glorious opportunity for the expression of the noblest sentiments of man. Another may regard war as a creation of the devil wherein mankind reverts to barbarism. But for both men the historical facts regarding war, when they are all discovered and presented, are the same. Differences appear in evaluation, so too with accounting. In formulating fundamental postulates to govern accounting procedure, therefore, one must be guided by the purposes which the accounting procedure is designed to serve. In the past the viewpoint and evaluation of the owner have been accepted as dictating basic principles. Accounting has been conceived almost entirely in terms of historical cost and historical transactions. In the usual case assets purchased may be justly conceived as costs applicable to the revenue which they are to assist in earning during the remainder of theft lives. The accountant frequently encounters difficulty, however, in allocating that cost to the respective and more or less arbitrary fiscal periods which the life of any given physical asset encompasses.

Reviews the book "Encyclopedia of Banking and Finance," 4th ed., by Glenn G. Munn.

A trust of corporate shares is often created under a will or other instrument in which it is directed that income of the trust is to go to a life tenant and that after this person's death the principal is to go to a remainder-man. If the trust instrument neglects to specify what is meant by income that is to go to the life tenant, doubtful items must be settled by the trustee. Among such doubtful items few have caused trustees more difficulty than stock dividends and the problem of allocating them between income and principal. The problem has driven trustees generally to seek the guidance of courts of law. As a result, the volume of litigation on the subject has steadily mounted. Because divergent judicial rulings exist between several states and varying applications of a given rule are made in the same state, trustees have readily submitted the problem for solution by courts at the expense of the trust fund rather than to decide the matter themselves and then become personally liable to suit by some dissatisfied party to the trust.

Reviews the book "Auditing Practice Set," 3rd ed., by Paul E. Bacas.

Reviews the book "The Monetary Experience of Belgium, 1914-1936," by Henry L. Shepherd.

The article discusses the statement of accounting principles, published in the June 1936 issue of the journal The Accounting Review. It involves the entire question of income determination, the most fundamental of all accounting problems. In the first place earnings, earned surplus, capital surplus, and capital represent important conceptions which are necessary to be kept distinct, in spite of the constant interchange among them. Changes in the accounts representing these four different things should accordingly be kept equally distinct. The income statement should be marked off in three stages showing income of the year, income adjustments for prior years, and realized capital gains and losses. Second, corrections of the costs and income of past years are not costs and income of this year. Earned surplus is the account containing the present resultant of all past income charges and credits, and it is the account to be used for subsequent corrections therein. Third, substantial capital losses and gains are certainly not proper items for the income account of any year. It is necessary to be clear at the outset that they really are capital losses and gains.