Knowledge that Transforms

Presents a foreword to the October 2, 1972 issue of the journal "The Accounting Review."

Reviews the book "Managerial Accounting," 3rd ed., by Carl L. Moore and Robert K. Jaedicke.

This article discusses the success achieved in presenting a case method course over the microwave television system installed at the University of Michigan in Ann Arbor. In the fall of 1970 the University of Michigan installed a microwave television system linking the main Ann Arbor campus with two outlying campuses. The transmitting studio is in Ann Arbor and receiving studios are located in Dearborn and in Southfield, thirty to forty miles away. In the transmitting studio two cameras were in continuous use. In each of the remote classrooms two television sets were located so that each student had a clear view of at least one set. The voice transmission from the instructor came over exactly as on a normal television. The physical process of carrying on the discussion over closed circuit television was as follows. The most important result or conclusion is that there is absolutely no evidence that any student learned any more or any less than he would have learned in the same course under the previous system. The initial adverse reaction seems to be emotional, not educational. Technically the system seems to be capable of conveying just as much information as the professor is capable of transmitting live.

This article reports the results of a study of the disciplinary cases considered by the state board of accounting and the state society in a large Midwestern state in the U.S. The results reported indicate the nature of the disciplinary cases handled by the formal control agencies of the accounting profession. In addition, comparison is made of the disciplinary cases handled by the accounting and the legal professions. An analysis is made of the charges against accountants that resulted in sanctions being imposed. Finally, some observations are made about the accountants who were sanctioned. Permission was obtained to examine the disciplinary files of the state society and the state board of a large Midwestern state. The state society's records were examined from 1905 to 1969. The data indicating the relationship between notoriety and severity of sanction were limited to the state under consideration. While similar patterns probably exist elsewhere, data for other jurisdictions would be of value.

Reviews the book "Business Data Processing," 3rd ed., by Ellias M. Awad.

The article highlights the report of the Committee on Courses in Financial Accounting of the American Accounting Association. The charge to this committee is to develop a comprehensive report outlining recommendations for the content of financial accounting curricula in consideration of, along with other sources, the recommendations of the 1969-70 committees. As an approach to fulfilling its charge, the committee evaluated several alternative methodologies. The committee considered at length cataloguing all financial accounting courses, accompanied by a detailed listing of content recommendations. The output of a financial accounting curriculum is also diverse. It consists of individuals who will assume various positions of responsibility within economic entities. Accounting instruction in a variety of subject-matter courses should incorporate some computer-oriented problems, where subject matter is conducive to formulation; but such instruction should convey the principles basic to an understanding of the profounder, non-technical issues to which computer solutions are being applied. Among the more significant issues facing those concerned with the development of financial accounting programs is the problem of deciding which subjects should be included as part of the curriculum. Decisions must be made concerning the quantity and level of subject matter which should be included to accomplish the output-goals at the various levels of understanding.

Reviews the book "Finney and Miller's Principles of Accounting: Advanced," 6th ed., by James A. Gentry and Glenn T. Johnson.

The article presents information on computerized budget simulation models, which can make an important contribution to accounting education. By simulating the budgetary process of the firm, they can provide a suitable method for studying the behavior of the budgeting system under a variety of conditions. They can provide insights into the interrelationships of the variables included in a budgeting system, and provide a valuable tool for experimentation with alternative sets of values for the decision variables included in the budgeting model. To allow accounting educators and students an opportunity to appreciate the potential of such computerized budget simulation models, Robert Seiler of the University of Houston has developed a computerized budget simulation model called FIMOF. The use of this computerized budget simulation model has illustrated to students the real meaning of comprehensive budgeting and the effectiveness of computer simulation as a tool for comprehensive profit planning.

The article discusses the incompatibility of bad debt "expense" with contemporary accounting theory. Accounting treatment of bad debt expense is inconsistent with criteria deemed relevant for measuring operating income in accordance with contemporary accounting theory. Bad debt expense is reflected in the income statement along with other information concerning operations even in spite of the fact that it originates as non-service data. This is to say that bad debt expense is not homogeneous with other costs experienced by the entity which comprise the basic data for periodic matching with. The following analysis delineates the methodological inconsistency, and a more appropriate accounting procedure for bad debt expense is proposed. Accounting methodology prescribes the relevant set of data for approximating periodic income from operations. Elemental data constituting the set are presumed to consist of services received and services rendered by an entity for which an evaluation of operations is made.

The article presents information on absorption and direct costing. The proponents of absorption costing maintain that in as much as production cannot take place without the incurrence of fixed factory costs, each unit of output must be allocated a pro rata share of those costs. The division of costs into fixed and variable makes sense only in the short run and defined as a situation in which the available quantum of services of at least one factor of production is unalterable while that of at least one other factor can be varied at will. Since the fixed-variable cost dichotomy occupies an important place in both microeconomic theory and cost accounting, it is reasonable to expect a close correspondence between the short-run behavior of costs in theory on the one hand and their accounting treatment on the other. It should be immediately made clear that the definition of the short run advanced above is at variance with the more orthodox definition in an important sense. The traditional cost functions derived from a two-factor production function generally assume that one factor is completely fixed and indivisible but is nevertheless capable of being combined with varying proportions of the other, i.e., variable, factors.