Knowledge that Transforms

Electronic data processing has brought about vast changes in every area of business management, and the credit and accounts receivable department is certainly no exception. Moreover, changes in business in general have placed greater emphasis on credit management. With computerization, the credit manager is in a better position to make a worthwhile contribution in the solution of problems facing management. The National Association of Credit Management reports that the dollar quantity of receivables is on the rise. New and more sophisticated quantitative techniques have been developed to assist credit management in assuming a new role in the total management of the firm. On one hand, management is concerned about the possible loss of sales due to a credit policy which is too tight; on the other hand, the concern is with possibly high bad-debt losses caused by an easy credit policy. The article discusses a credit model that can assist management in resolving this conflict. The model adopts marginal costing methodology, which offers accurate information for the management.

The article reviews the book "Accountants and the Law of Negligence," by R. W. V. Dickerson.

Reviews the book "Quantitative Methods: A Survey Guide for Managers," by Billy E. Goetz.

The article criticizes a work of R. J. Chambers that provides an outstanding and provocative contribution to the development of accounting theory. The criticism involves a brief review of the relevant parts of Chambers' system, a technical discussion of the requirement of additivity in measurement, a discussion of whether Chambers' chosen property fits this technical requirement, and a more general discussion of the implications of the criticism. The authors conclude, for two reasons, that current cash equivalent is a nonadditive property. First, it is nonadditive because summation of the realizable prices of individual assets presumes independent sales of those assets and therefore does not involve a mode of combination. Second, it allows the independent sale of assets as a mode of combination and proceeds to question its possible artificiality

The article discusses the impact and significance of reversing an entry in accounting, as this is a frequently confusing topic in accounting education and examinations. The reversing entry is defined as an entry which cancels a preceding entry. If an entry on either side of an account is followed by a reversing entry, the result of two entries is to leave the account in its original condition. The sequence of entries must be very carefully planned there must exist criteria by which a correct sequence can be constructed. The criteria are that at the end of each sequence balancesheet accounts involved stand at zero and that each individual transaction has been recorded once. These entries may be defined as adjusting entries, closing entries, correcting entries and routine entries. A routine entry, a closing entry, and an entry correcting an error in amount or account are never reversed. Conventionally, reversing entries are conceived as following and canceling an adjusting entry; however, an entry correcting an omission and an adjusting entry may be reversed under some circumstances.

Prices go up and prices go down, and with each change in the price level the discussion of replacement-cost usage recurs. It appears that businessmen and accountants were willing to experiment with the use of replacement cost in the 1920's and early 1930's. But this receptivity to its use has declined steadily since then: in the 1940's practicing accountants were opposed to its use; and when "A Tentative Set of Broad Accounting Principles for Business Enterprises" (published in 1962) advocated the use of replacement cost for inventory valuation in financial statements, practicing accountants seem to have given it about as much attention as a ten-dollar mistake in the plant account. Thus if past experience holds true for the future, replacement cost will still receive its share of attention from theoreticians while practicing accountants largely ignore it.

Reviews the book "Management Control Systems: Cases and Readings," by Robert N. Anthony, John Dearden and Richard F. Vancil.

The article discusses the applications and limitations of multiple regression analysis on cost behavior. The author asserts that regression analysis is not only a valuable tool but a method made available, inexpensive and easy to use by computers. When one considers that costs often are caused by many different factors whose effects are not obvious, one recognizes the great possibilities of regression analysis. In addition, this method must not be used in cost situations where there is not an ongoing stationary relationship between cost and the variables upon which cost depend.