Knowledge that Transforms

Reviews the book "Cost and Budget Analysis," by John Dearden.

The profitability of an investment proposal is dependent upon both the amount and the timing of its projected cash flows and that some means of establishing a basis for comparing cash flows over time is necessary in order to select the combination of investment proposals which is optimal. This is a complex problem but recent discussion has highlighted several points. Firstly, the measurement of the profitability of investments by means of the internal rate of return or marginal efficiency of capital suffers from the implicit assumption that the intermediate cash inflows produced by a project can be re-invested at a rate of return equal to the rate which is assessed for the initial project. As a result, it is necessary to introduce an independent discount rate to make comparable alternative projects. Secondly, for a corporation whose management wishes to act "in the interests of shareholders" and therefore aims to continually choose that financial position which maximizes its current stock prices and dividend.

Reviews the book "Cost Accounting: A Managerial Emphasis," by Charles T. Horngren.

Reviews the book "Basic Auditing Principles," by Arthur W. Holmes.

Reviews the book "Direct Standard Costs for Decision Making and Control," by Wilmer Wright.

Accounting assumes continuity, but this means that the financial statements prepared by breaking the continuous stream of activity into periodic segments, even under the most favorable circumstances, provisional in character. Continuity serves to complement and strengthen the concept of earning power, the income statement is a means of making available a section of the continuous flow of cost and revenue to exhibit management's effectiveness in handling available resources. In consequence, it should recognize all special and non-recurring losses and gains, as these elements modify the long run income stream. The basic idea of measured consideration" is broad enough to encompass the entire range of accounting measurements, it is superior to "value" because values bring in measurements of another and different order. Value would include amounts for utilities not measurable except by one's own judgment until a sale confirms this added utility its measurement is not objectively possible. However, the use of money and price as measurement devices should not obscure the fact that the significant element behind the accounts is service potentialities, which, when exchanged, bring other service-potentialities into the enterprise.

Reviews the book "Cost Accounting," 3rd ed., by Adolph Matz, Othel J. Curry and George W. Frank.

Reviews the book "Financial Statements--Form, Analysis, and Interpretation," by Ralph Dale Kennedy and Stewart Y. McMullen.

Reviews the book "Statistical Sampling for Accounting Information," by Richard M. Cyert and Justin Davidson.

The decade and a half since World War II has witnessed considerable activity by industrial managements and the professions serving them in sharpening and polishing management tools that have been in industry's tool sheds for years. However, refurbishing the old tools has been inadequate. During this era industrial products have been radically changed, principles once held inviolate have given way to new ones and the introduction of new industrial processes, techniques, and research methods have radically altered long standing skill requirements. In this environment, if a profession is to survive it can do so only by orienting itself rapidly to the changing circumstances. The accounting profession during the past 20 years has taken many actions in recognition of a changing business environment. During the decade of the 1940's there was for example, considerable activity in describing and codifying accounting principles, standards, guides for professional conduct and the like. During the 1950's there was substantial emphasis on publicizing an image of the professional accountant as an "independent contractor" expert in attesting to and adding credibility to the financial statements of economic organizations.