Knowledge that Transforms

The author was asked to discuss the section of the Statement of Accounting Principles, which deals with capital and he shall endeavor to confine his remarks to that subject though it may be necessary occasionally to refer to related statements made in other sections. The initial words in the section dealing with capital are: corporate capital, the equity of stockholders of all classes in the enterprise. The author thinks this specification should be kept clearly in mind. What is being discussed in the pamphlet is the accountability of a corporation to its stockholders. It is not the economic capital of the corporation which would be represented by its assets, nor is it the capital from the standpoint of the stockholders. Accounting principle relates primarily to the interpretation of transactions, which have occurred. From the standpoint of ethics it might be argued that it would be unfair to take capital contributed by stockholders of one class and use it to buy shares from another class of stockholders. Rights of different classes of stockholders are established by law and by the contract contained in charter of the corporation.

Reviews the book "Industrial Accounting," by Samuel Waldo Specthrie.

Because of its relation to both law and economics accounting contains a number of challenging problems. In the solution of these the accountant is influenced largely by the requirements of the basic philosophy and the purposes underlying and supporting his own field of endeavor. In some instances the legal point of view may dictate the decision, as for example in the division of corporate invested capital into capital stock and capital surplus; in other instances the economic or business point of view may be the influential factor, as when a building purchased on the contract plan is recorded as an asset even though title has not been acquired. In the main, however, accounting has its own story to tell. Where that can be done without too gross a violation of either of the supporting lines of endeavor the path of action appears to be clear. The accountant is at least free to go behind the formalistic and somewhat mechanical interpretation of the twin handmaiden to accounting that he represents.

The article presents information about the industrial accounting courses that are being conducted in the U.S. as a part of the Engineering, Science, and Management Defense Training Program (better known as ESMDT). The U.S. Congress inaugurated this program in July 1941. It may be observed that the ESMDT program is in reality just an expansion of the university extension adult education programs, which have been set up by many institutions in the years past. The program involves a definite innovation, however, in that the Federal government hitherto has limited its financial assistance to vocational level courses. Several educational authorities have expressed certain misgivings as to the implications underlying this move. It is felt by some that the ESMDT represents a type of Federally sponsored higher education which may have permanent and wide repercussions even after the present war is over. Little attention has been given to this important matter up to the present time, as the national and local administrators have been too busy with problems involved in setting up the institutional programs to deal adequately with the long-term aspects of this type of adult education. As the program gains headway over the next few months, more thought will naturally have to be devoted to the relative permanency of the organization, and also to its coordination with the now existing extension activities of the universities and colleges of the country.

This article focuses on published accounting statements. Published statements should permit a variety of sound uses by the many groups (owners, creditors, management, employees, government, and the general public) who rightly are entitled to adequate, unambiguous disclosure. Furthermore, it seems reasonable to suggest that excellence in statement presentation is co-ordinate with the conception of a business enterprise. As is generally recognized, some accounts automatically reflect current dollar values. These accounts either are active enough, have a balance of recent origin, or represent a determined money dam so that the account balance has a significance, at a given date, above a simply nominal dollar amount. Other accounts, mainly fixed and intangible assets, have no such natural "up-to-date" characteristics. It seems reasonable to expect that a portion of the misunderstanding attributable to price-level variations might be removed if the statement presentations revealed the approximate dates of significant investments in fixed assets. Perhaps a considerable amount of confusion on this score arises from a deficiency of supplementary supporting schedules. If sufficient detail about certain account balances or classifications were available for the interested statement user, better results might be forthcoming.

Reviews the book "Audits and Examinations," by Christian Oehler.

Reviews the book "The Control and Valuation of Inventories."

The principal concepts of the orthodox theory of proprietorship are rather vague and few of its assumptions valid under modern conditions. Much of these concepts and assumptions as resting on legalistic ideology of ownership, debt, etc., however, are unnecessary as they are undefendable. The proprietorship theory seems to be more plausible when it rests on an ownership point of view consistently applied in the analysis of business transactions and in defining cost and income. A narrow concept of owner or proprietor, however, is adapted only to the needs of calculating proprietary income and capital. It is not consistent with the more vital functions, in connection with managerial analysis, which accounting is coming to fulfill. A concept of proprietor broadly defined as the totality of private interests or the long-term investors as a class would be more logical and workable from the standpoint of theory and practice. The adoption of such a broad point of view, together with the abandon merit of any sharp distinction between proprietorship and creditorship on the basis of legal or economic ownership, no doubt changes the whole complexion and content of the orthodox theory of proprietorship; and it may be questioned whether it may still be called a proprietorship theory.

Objective examinations in accounting are a subject on which a good many people seem to have very definite and adverse, opinions. Perhaps the objective examination is usually thought of as consisting of a more or less formal list of true-or-false questions; and when the material of an accounting course does not seem to be particularly well adapted to this type of question, the conclusion is easily reached that the objective examination has little place in accounting. The object of this paper is, among other things, to suggest some of the possible forms that the objective examination in accounting may take in order to cure the difficulties of the true-or-false question. It may be that with adequate variety in the testing devices the objective examination may appear feasible as a testing device, if not positively desirable. An objective test in accounting has been defined as a test designed to cover a large amount of material, to have a large number of questions requiring very brief answers, the answers to each unit being the same for every student who answers the questions correctly.

Reviews the book "Business Statistics," by Martin A. Brumbaugh and Lester S. Kellogg.