Knowledge that Transforms

The last two decades have witnessed an enormous increase in the use of the holding company as a device for financing and welding together hitherto independent units of business operation, as of March 1933. In no field of business endeavor has the growth of holding companies been so pronounced as in the field of public utilities. The motives prompting its use have often been of questionable character. Financial history is replete with instances in which the purpose apparently has been to achieve individual objectives at the expense of the balance of society. Even a superficial study of the economic losses resulting from holding company collapses raises a serious question as to their social desirability. Some students of business insist that the holding company is a by-product of a period of stable price levels when increased outputs with declining costs were the order of the day. They insist that during trying times disintegration will take place and that the successful business of the immediate future will be the small business unit which has shaken itself free from expenses entailed by heavy overheads and idle plants found in the larger organizations.

The article presents information related to some legal and accounting questions presented by the Michigan General Corp. Act. In accepting the invitation from the Michigan Society of Certified Public Accountants to discuss the legal and accounting questions involved in the capital stock provisions of the Michigan General Corp. Act adopted in 1931, it was understood that the discussion of the author would be primarily from the viewpoint of the corporation lawyer. Although the author is not an accountant and does not profess to have any technical knowledge of the theoretical accounting problems, nevertheless, in the actual practice of corporation law it becomes essential to gain some understanding of certain accounting principles involved in the preparation of a corporate balance sheet and presented in every corporate security issue. These accounting principles are interrelated with important legal principles and are of general application quite independent of the provisions of any particular corporate statute.

Reviews the book "Bankers' Gold," by Edgar L. Smith.

This article discusses the three-fold presentation of an accounting problem. The obstacles that confronts a layman eager to attain a good understanding of principles of accounting are limited knowledge of applied business practices, a group of terms, easy of spelling and pronunciation, but difficult of comprehension, a particular mechanism of thought, based upon certain phases of logic and an unavoidable drawing together of the conclusion of a selected example in relation to the probable past and future financial history of the business unit. The principal divisions of a plan proposed consist of – a statement of fact, an accounting interpretation of two parts, journalized form and T-form and observations as may be set out in trial-balance form. The consideration of the three-fold presentation of an accounting problem may depend upon its usefulness as a teaching device in bringing together in concise form certain implied facts and business and accounting relationships and offering a unique method of reviewing in a progressive manner basal principles and materials which form the essence of instruction.

Reviews the book "Corporate Enterprise in Modern Economic Life," by Paul M. O'Leary.

Standard costs are used for the purposes of control, payment of premiums and measurement of efficiency; but the costs which go into the cost sheets and profit and loss statements are so-called actual costs. The elemental standards, as the name implies, are set for each item of variable expense and do not sum up to a standard amount of money, pre-determined, for a unit of production for the department. In using the elemental standards, the standard expense dollars and standard cost per unit are shown alongside the actual expense dollars and actual cost per unit for each item on the cost sheet. The departmental efficiency is computed by dividing standard cost per unit by actual cost per unit, which reflects the superintendent's effective use of time, labor, machinery and materials. Current or average inventory prices are used for computing the average cost of materials on both standard and actual side of the cost sheet, so that the effect of variation in price is removed in comparing efficiency. Each month the general budget is compared with the actual profit and loss statement in a report to the management and the variation between actual and budget is analyzed for the company as a whole in the same manner as each plant has analyzed its own variation.

Income is the economic benefit coming in during a period of time. It consists of current income and of capital gains and losses. The general accounting habit of regarding income as though it were synonymous with realized income, although of some usefulness in practical affairs because it tends to substitute fact for fancy, should be more dearly recognized as both illogical and generally causative of the compilation of false information. All the income--realized, unrealized, and the total thereof--coming into existence during a period should be credited to that period, but the realized should continue to be separated from the unrealized.

Governmental Accounting is that type which deals with the recording and reporting of transactions for political units, such as municipalities, states and the federal government. The article presents recent attempts in governmental and institutional accounting. These are presented to show that there has been some practical improvement. A recent action has been the study and preparation of a system of uniform financial reports for universities and colleges. Dishonesty and inefficiency cannot exist for long when public opinion is adverse to it and when proper education shows a better and more efficient method. It is frequently held that improvements in all governmental procedures, including accounting, are retarded through the fact that elected officers have a short term of office and therefore, are not interested in exerting themselves for the betterment of procedures. The whole subject of governmental accounting is based upon the transactions of governmental and institutional units and their proper segregation into funds.

Reviews the book "Analyzing Our Industries," by C.E. Fraser and G.F. Dorlot.

This article discusses the basic concepts of depreciation. The fundamental facts of depreciation-- the exhaustion of capital investment due to the physical or functional exhaustion of service capacity and the necessity of recovering capital investment before any profit on a venture could be claimed-have not always been understood by those individuals who regularly engaged in business undertakings. The book "The Elements of Book-keeping," by P. Kelly, published in year 1838, illustrates the inventory method of balancing the fixed asset. The 13th Annual Report of the Boston & Providence Railroad Corporation, describes a tardy recognition of accumulated depreciation, the depreciation from January 1, 1834 to December 31, 1844 being recorded in 1844. During the period, 1849-1867, a considerable amount of experimentation with methods of presenting depreciation data was evident. In the annual report of 1853, figures were inserted in the section headed "Estimated Depreciation beyond the Renewals' and deducted from surplus.