Knowledge that Transforms

So there may be no misunderstanding of my thesis, I have (1) used the term "capital fund" to indicate the total net capital or resources available for the operation of a business; (2) segregated this "capital fund" into its two component funds, namely "working capital fund" and "fixed capital fund"; (3) stated, therefore, that "capital funding" ordinarily occurs only from net profits and the addition of new capital; (4) held that the internal operations of a business frequently involve the conversion of working capital into fixed capital and vice-versa; that these should be called "conversion funding" because they do not affect the "capital fund," but (5) that all of these funding operations be aptly described in the Application of Funds Statement, so that the reader may clearly see how they affect working capital; finally, that the term "non-funding operations" is misleading and incorrect because these are clearly operations between the two component funds which make up the total capital fund of a business; they are funding operations, hence the term "conversion funding" is recommended.

This article attempts, by use of the published data, to summarize and analyze the United States Steel Corp.'s reporting of goodwill and associated elements during these eventful years. In addition to pointing out an interesting chapter in American corporate reporting, the summary perhaps directs attention to the importance of sound valuations for contributed resources and the desirability of systematic accounting for goodwill. The United States Steel Corp., as is well known, was organized by a syndicate headed by J. Pierpont Morgan. In consolidating a number of existing companies, the syndicate issued none of the bonds or shares of the new corporation for cash alone. Although the preferred and common shares were issued in amounts which resulted in a large quantity of stock discount, the legal status of the shares was materially improved by withholding from the financial statements any evidence of this discount. Apparently for this reason the beginning balance of the "Property Account" was determined residually after the assignment of par value to the securities issued and appropriate values to assets other than those included in the property account.

The author discusses management and industrial accounting in Western Europe and the differences between European and American businessmen. He discusses the social backgrounds of both businesses mentioning that the United States impress Europeans with its superior organization of industry. He highlights the fact that the American wage rates are higher than any of the European countries by comparing wage rates and systems of taxation. He evaluates the performance of European managers, while considering the lack of adequate incentive in delegating authority or creating a middle level management to make decisions. While discussing the shortcomings of the European industry in relation to industrial accounting, he points out that the engineer tends to be the man running the European industry, and in the function of forecasting and budget planning the engineer tends to think first of production and next of selling that production. He discusses the role of budget planning and standard cost accounting in Europe and the status of business schools as affecting European industry.

The article focuses on electronic data processing in the accounting curriculum. The author mentions that growing development in the field of electronic computers and their potential use in processing business and accounting data has prompted course offering in this area. He enumerates the content that should be included in a university-level course in the area of accounting. He brings into consideration the programming of a system which includes planning, systems analysis, flow charting, coding and the other functions necessary to integrate the new system into business. He discusses the question of whether an electronic computer is necessary to teach a course or not, stating that it is necessary for elementary courses in data processing. Questions pertaining to the requisites for courses, the department which should offer system courses and the text material to be used in such courses and the availability of instructors in data processing and the training necessary for prospective instructors have been examined.

The purpose of this study was to investigate the applicability of statistical sampling techniques to the confirmation of accounts receivable. The confirmations of accounts receivable by a firm of independent auditors in three companies-two industrial ones and a public utility were investigated. These companies were chosen to provide a variety of situations as to type of business, problems encountered in confirmations, etc. Nevertheless, three companies constitute a very small sample, and this fact must be borne in mind in evaluating the findings. There are several important implications in the use of sampling by the auditor. In the first place, the auditor's purpose in using confirmations of a sample of accounts cannot be to make all adjustments in the accounts, which are necessary. That could be done only by a complete examination, not on the basis of a sample. In the second place, it cannot be the purpose of an auditor in confirming a sample of account balances solely to reconcile and make adjustments where necessary in those accounts, which happen to fall into the sample. If that were the purpose, the auditor would be ignoring completely all accounts not in the sample. Rather, a sample of accounts is confirmed to provide the auditor with a picture of certain characteristics of all accounts or of the accounting process, as revealed by confirmations.

Reviews the book "Proceedings of the Seventeenth Annual Institute of Accounting."

This article focuses on the author's personal experience about a sabbatical fellowship program. The author who is assistant professor at the Duke University, says, that the termination of a one-year fellowship program in public accounting with the firm Price Waterhouse & Co., has proven most interesting and valuable. Returning to the classroom after a year of study and work with an accounting firm has emphasized the benefits of such a program to the teacher and his students. Since the fellowship was arranged for my sabbatical leave, a period of one year, it necessarily took on many of the attributes of regular employment, my assignments including regular staff work on various audits performed by the firm. Thus, instead of being merely an observer on these audits, my position was more nearly that of a member of the staff. As shall be explained subsequently, there were certain features of this fellowship which distinguish it from regular employment and thus made it possible to gain a maximum benefit from a relatively short period of experience.

The author of this article critically examines joint analysis as an aid to management. He refers to a paper by Professor Arthur N. Loring, titled "Joint Cost Analysis as an Aid to Management," published in the journal, "The Accounting Review," in which the results of the analysis is given. The author enumerates the proposals made by Loring to ascertain the existence of the conditions arrived at by applying the analysis. The proposals are to, compute a percentage gross margin for the product group, application of the percentage to the sales value production, to deduct the result in each case from the product's sales value and to compare the remainder with the unique processing cost necessary to render the product salable. The author comments that prescribed methods may yield negative joint allocations to some products and that Loring's proposals and statements are not complete and that he has failed to demonstrate that any method of joint cost analysis is in itself useful for managerial decision-making.

The objective results obtained from this comparative study reveal that from 1936 to 1954 (a) the percentage of net fixed assets to total assets has decreased in relative importance; (b) the annual depreciation and depletion charge in relation to gross fixed assets has increased; and (c) the annual depreciation and depletion charge as a percentage of net sales has decreased. These phenomena perhaps have no general explanation because of the many variable factors which enter into the growth and changing relationship of the asset accounts. One outstanding reason which seems to account for the changes in fixed asset relationships is the increase in prices (decrease in the purchasing power of the dollar) during the time of the study. This is certainly not the sole explanation. A relative increase in the amount of working capital and investments to total assets occurs as the percentage of net fixed assets to total assets decreases. Present credit restrictions and bank lending practices are different from those in 1936, and probably account for larger amounts of assets being tied up in receivables. The diversification of operations will have an inclination to increase inventories and receivables. Fund accounts, consisting of cash and marketable securities, established for pension and sinking funds, are being enlarged. Mergers and consolidations also have their effect on fixed asset relationships in the accounting records. All of these factors and their relation to fixed asset accounts will shift from time to time depending upon the phase of the business cycle, the stability of the price structure, the degree of employment, and the stage of technology in our economy.

Reviews the book "The Punched Card Annual," vol. 4.