The article comments on an article that excluded bad debts from the calculation of periodic earnings. The fundamental premise providing the basis for the argument to exclude bad debts from the calculation of periodic earnings is that uncollectible accounts are not homogeneous with other expenses of the earnings statement. Accordingly, the appropriate criterion for judging the homogeneity of the elemental data on the income statement is whether a causal linkage (pecuniary motive) exists between the inflows and outflows of net assets caused by the relationship with customers. Before determining whether bad debts are within the extension of this standard, consideration must be given to the contention made by some that bad debts are adjustments to the revenue stream. Consideration can now be given to whether bad debts are causally related to the inflows of net assets from customers. To answer this question one must consider the ability of management to anticipate and control such expirations of net assets. In summary, the causality criterion seems a more appropriate basis for judging the homogeneity of the expenses and revenues to be used to calculate operating income. Applying this standard to uncollectible accounts shows these asset expirations to be consistent with other expenses incurred by management for the generation of revenue.
The article discusses the role of accountants in social accounting or social reporting. Based on accounting literature, accountants can and should contribute to the efforts directed towards enhancing methods of evaluating the state of society and social programs, and the application of evaluative procedures in the allocation of resources to efforts to enhance social well-being. The functions of social accounting include the assessment of the state of society, assessment of the performance of a social program, and indication of control mechanisms.
Reviews the book "The Accounting Concept of Profit: An Analysis and Evaluation in the Light of the Economic Theory of Income and Capital," 2nd ed., by Palle Hansen.
The article presents a reply by professor Ronald V. Hartley on criticisms over the use of quadratic programming in a case of joint production. One of the cases in the author's article, "Decision Making When Joint Products Are Involved," entailed the possibility of producing a product in excess of demand. One of several alternative "uses" of this excess was to consider the creation of more demand by lowering the price. By defining some variables differently it is also possible to simplify the model. Once the optimal price and quantity have been achieved it would not be desirable to reduce the price just so that excess capacity is consumed. To do so would generate less revenue than setting a larger price with a smaller quantity sold. However, it would never be desirable to consider prices lower than the optimal since the revenue that could be generated by selecting a lower price could also be generated by selecting a higher price. At that higher price the quantity sold would consume fewer or equal resources.
The article summarizes the results of a survey on income tax questions included in the 17th Certified Public Accountant (CPA) examinations administered in the U.S. between November 1964 and November 1972. The trend towards testing of conceptual tax knowledge in addition to specific rules and procedures complement the objectives of the Committee on Education and Experience Requirements of the American Institute of CPA, as well as the recommendations of the Committee on Federal Taxation of the American Accounting Association and predecessor committees.
This article presents a comment on Supplementary Statement No. 2 on inventory valuation. The majority of the Committee on Inventory Measurement supported the replacement cost approach as the best of several available inventory measurements. Focusing the attention of users on "management's success or failure" seems to imply that holding activity is to be used as a surrogate of performance in the inventory area. In the presence of uncertainty, speculation by management about future price movements can prove to be "dangerous." One suspects that the Committee perceived that the risk of a price decline would act as a brake on unbridled speculation, whereas the reporting of holding gains would act to encourage inventory investment when price increases were reasonably evident. Since the methods recommended by the Committee do not establish standards for evaluating the magnitude of holding gains and losses, purchasing management could be encouraged to satisfice rather than maximize their reported performance with respect to discretionary purchases. The Committee concluded its report with the suggestion that two specific methods of replacement costing be used in the belief that these methods would portray the effects of their recommendation on financial reports.