Knowledge that Transforms

The article presents information about accounting principles and the current classification. The current classification is primarily a classification for credit granting, which was popularized to meet needs of credit men many years ago, at a time when single entry book keeping was probably more prevalent than double entry, when there was no well-organized internal accounting worth mentioning, and when the statement of assets and liabilities furnished to creditors consisted substantially of estimates unsupported by anything approaching modern accounting records. The classification of current assets is bad classification from almost any viewpoint. The total of current assets is not homogeneous, for it is built up of unlike elements and unlike values. Accountants have not been unaware of complaints against the current classification nor have they been unaware of the need for reconciling this specialized credit concept with general accounting theory. Remedial measures which have been or are being proposed, however, do little to improve the situation from the accounting viewpoint, while at the same time they do much to diminish the credit utility of the current classification.

Reviews the book "Internal Auditing—A New Management Technique," edited by John B. Thurston.

The Arthur Lowes Dickinson Fund was established in January, 1929, at the Harvard Graduate School of Business Administration by the firm of Price, Waterhouse & Company, in recognition of the debt due by the accounting profession in general, and particularly by this firm, to a former partner, Arthur Lowes Dickinson. The income from this fund was for a number of years used exclusively for the purpose of conducting research in the field of accounting. In 1936, terms of the Fund were modified to provide that in addition there may from time to time be appointed, for one year, a man outstanding in accounting who shall deliver at the Graduate School of Business Administration one or more lectures, and shall be designated as Dickinson Lecturer. Professional standing comes not so much as a result of claims as it does from works of such character that professional standing is conceded by the public, and one of the tributes paid by the public is recognition of the fact that the subject matter in the field of the group in question deserves a place in the higher educational program which the public, through gift or taxation, supports.

Reviews the book "Recent and Prospective Developments in Accounting Theory," by William A. Paton.

Reviews the book "Foreign Trade — Principles and Practices," by Grover C. Huebner and Roland L. Kramer.

A logical and coherent system of standards for income determination must be constructed if one has to judge the adequacy of income tax provisions for calculating income. If the economic concept of income is modified to fit practical business conditions and difficulties, it becomes a concept which is, in reality, a logical accounting conception. Since both economics and accounting deal with business, they should furnish the basic outline for determining taxable income. There appears to be sufficient reason for prescribing accounting methods, in general, for measuring income for tax purposes. Caution must be exercised, however, not to assume arbitrarily that income tax methods must conform in their entirety with accounting methods. Since a business enterprise measures its progress or retrogression by accounting methods, greater convenience, simplification, and cooperation will exist if taxable income is computed in the same manner rather than by an arbitrary or illogical statutory system. The methods followed by accountants and businessmen are tied up rather closely with economic facts and conditions, the tax system, likewise, should be so related.

Too frequently in the past the application-of-funds statement, if used by the auditor, has been included as a schedule or exhibit in the back part of the report. In too many cases also, the main application-of-funds statement has been supported by a working-capital schedule, which served as a catch-all for items that seemed difficult to classify and which served no especially useful purpose not covered by a comparative balance sheet. As a result of such type of presentation, the application-of-funds statement has been growing less and less significant to the executive and has been practically ignored by many in the process of examining an auditor's report, even when the report contained such a statement. The application-of-funds idea, however, is too valuable to have its real existence jeopardized by an unfortunate selection of form and location in the auditor's report. The main purpose of an application-of-funds statement or summary is to answer a type of question regarding the financial status and operating results which is not answered by the balance sheet or operating statement.

Professor Thomas W. Leland has been appointed as education director of American Institute of Accounts. According to the press, his work for the institute will include development of refresher courses sponsored by the institute and collegiate schools of accounting for members of the accountancy profession returning to their practice after war service. Included also in the educational program to be administered by Leland will be relations with state boards of examiners of states which have officially adopted the standard American Institute examination for certified public accountants. In this phase, Leland will work with the board of examiners of the institute. He will also be concerned with other educational activities of the organization. In expanding its service to the profession, the institute is making increasing use of staff comprising of various functional heads. A technical assistant is provided in normal times for each of several important research committees and a director of research is retained to coordinate the work.

Reviews the book "Standardized Accountancy in Germany," by H.W. Singer.

Cost accounting is fundamentally an analytical approach to the development of useful and necessary specialized management information. Techniques are only chosen methods of analysis and reports are a device to report results. Whether or not formal accounting routines and records are used is a matter of convenience and internal check. One of the first difficulties met in teaching cost accounting is the fact that there is not even a single fundamental definition or idea of cost which will meet all requirements. Cost has many different meanings, with only an extremely indefinite unifying idea to justify the application of the same term in such widely varying senses. The economist has long recognized this fact and carefully differentiates different meanings he attaches to the word. The basic business approach to cost was one of financial outlay. As developed by accountants, the businessman's primary idea of cost has been one of a normal average amount, determined as the sum of an accumulation of direct factory outlays and of a reasonable proration of indirect factory outlays. By outlay he means actual use or consumption of goods or services for which he has paid or is obligated to pay cash. The future of industrial cost analysis is bright, for it is a vitally essential business service. It has shown and can be expected to continue to show a rapid development in the quality of its service to industry. There is a need for better-trained juniors to enter cost accounting as a career.