Knowledge that Transforms

The organization of educational work has been viewed as a rapidly growing interest among accounting teachers in various business school across the U.S. Education in university schools of business is still in the experimental or possibly the transitional stage. These considerations underlie the proposition presented in this article, a proposition involving the way business is organizing for its work, the way an educational program in business is organized, and the problem of correlating business and educational organization, with special reference to the part which may and should be played by university teachers of accounting. It has been assumed for this discussion that the purpose is to train men who will eventually become responsible business executives or such professional techniques as public accountants. A separate study of controllership as a program in accounting would seem desirable for two distinct purposes. First, it would add the usual accounting training. The second purpose for which controllership may be studied is to serve as a unifying, organizing course for all business administration students.

Reviews the book "Industrial Engineering and Factory Management," by Arthur G. Anderson.

On February 23, 1913, the U.S. Secretary of State certified to the U.S. Congress that the sixteenth amendment to the Constitution, by virtue of which the Federal government was empowered to tax incomes without apportionment, had been adopted by two-thirds majority in several states. It has been reported that during the discussion preceding the adoption, objection was made on the ground that the taxing of income was equivalent to laying a tax on ambition. Despite this and all other objections, the amendment became a part of the U.S. law. The law had the most devastating effect on people engaged in the teaching of accounting. In this respect, first results of income tax laws as related to the field of accountancy were to bring home to taxpayers the utter necessity for accurate financial records and as a corollary of that necessity to augment to a remarkable degree the body of trained and competent men engaged in accounting pursuits. These laws which have made the nation take account of itself have in turn been compelled to take cognizance of principles of accounting.

Three different groups of people have formulated definitions of the term profit. Each has its own point of view. Economists as a rule are interested, first, in explaining why the phenomenon of profit appears in society or why profits are tolerated and second, in deciding what it is that determines who shall receive the benefit of profits. Here profit is considered a social phenomenon associated with problems of the distribution of the proceeds of society's productive activities among factors responsible for that production. Courts have had to pass upon questions of what is profit in connection with income tax matters and dividend declarations or insolvencies. In the latter case, courts have been mainly interested in seeing that the capital fund is not paid out as dividends to the detriment of creditors of limited liability enterprises and consequently are likely to accept as profit available for dividend all of the proprietorship except the original contribution. In tax cases courts are mainly concerned in construing statutes and thus in passing upon the question of whether the matter at issue was or was not profit within the intention of the legislature and not whether the matter was or was not profit in fact. Businessmen, on the other hand, view profits mainly as a measure of accomplishment. They are, of course, interested in the profit legally available for dividends.

This article deals with some applications of accounting as a tool for social control of economic activity, as opposed to the internal administrative control of a particular business. It is the purpose rather to bring together some facts with which most accountants are familiar, but which have not usually been discussed as presenting similar problems. various aspects of social control through accounts will be set forth under following heads, accounting as a tool for controlling governmental activities, the administration by a government of duties which are primarily economic in nature, accounting for non-profit institutions, governmental uses of accounting to control private enterprises, both public utilities and those enterprises which are not so commonly recognized as being of a public or quasi-public nature, uses of accounting by groups of private enterprises in an attempt to co-ordinate their activities and to increase their individual efficiency, the profession of public accountancy which has developed in the modern economic order. Private enterprises attempt to earn the greatest possible income with the least possible expense, the amount by which income exceeds expense is the measure of the success of a private enterprise. A government, on the other hand, attempts merely to collect sufficient income to cover an agreed expense program over a given period of time.

Reviews the book "Bank Loans on Statement and Character," by Mahlon D. Miller.

The most important production problem confronting the average manufacturer today is whether or not to scrap old machinery or equipment and buy more modern machinery of higher efficiency. While all the factors involved cannot be evaluated by an exact computation in dollars and cents and the final answer must necessarily. involve the element of judgment, nevertheless the answer will in most cases be no better than a guess unless those factors which can be measured exactly in dollars and cents have been correctly reduced to figures. Some of the printed discussions of this problem have included as one of the determining factors the present "book value" of the machinery to be scrapped. If one stops to think, it is evident that any such solution must be in error. Whether or not we have charged more than adequate or less than adequate depredation in the past has nothing to do with the case. Another factor which is frequently overlooked is the effect of compound interest. As the period increases its importance increases.

Reviews the book "Credit Analysis," by W.C. Schluter.

Reviews the book "Essentials of Cost Accounting," by L. Cleveland Amidon and Theodore Lang.

The determining factor in the establishment of any given business policy is a comparison of the additional income and the additional cost expected to result therefrom. If the former exceeds the latter, the action based on the policy is profitable to an enterprise, regardless of the costs which have been incurred previous to any single business decision. The foregoing principle applies to any given business decision, ranging from a produce dealer's problem of accepting an additional order for 100 pounds of butter at a given price, to a capitalist's problem of whether to build and operate an automobile factory. Differential costs may be defined as the costs which must be incurred if an additional unit of business activity is undertaken, and which seed would be incurred if this additional unit of business activity is not undertaken. All other costs may be designated as residual costs, from the standpoint of that particular portion of output or group of operation, the differential cost of which is being calculated.