Knowledge that Transforms

Since accounting is the method and means of recording, measuring and interpreting business and economic events, it is evident that accounting like statistics, is a technique and tool of social science, applicable particularly to business enterprises and other accounting entities. The accounting procedure must be used in a scientific manner in order to obtain results, which present true and impartial pictures of economic and business facts. In other words, if accounting is really to fill the role assigned to it as a means of economic control, it must grow out of its traditional, rule of thumb procedures and assume the stature of an objective, impersonal social science. There is considerable evidence today of a growing recognition among accountants that such a development is not only possible but also very necessary and that the time has now come when the practice of accounting ought to be placed on a genuinely objective basis, so that the special desires and interests of individual accountants and business managers will not unduly influence findings of accountants.

Reviews the book "Accountants' Index."

Since the Tentative Statement of Accounting Principles was published in 1936, a considerable critical and explanatory literature has developed on the general subject. No doubt the time will come when this discussion will inspire a reexamination and perhaps a revision of the original statement. With this in mind, the article reviews the Tentative Statement. Several general conclusions may be drawn from an examination of the published criticisms of the Tentative Statement. First, several of the propositions are considered by the critics as being applications of principles rather than principles in themselves. Second, the critics seem to offer no objection to the inclusion of what are essentially definitions and rules. Third, the implication is made that the Statement would have been better constructed, not as a series of equally important propositions, but as principles and corollaries. Fourth, some of the propositions, although challenged, are left in rather an uncertain state because the critics disagree as to whether there is sufficient reason to reject them. Fifth, the wording in many cases has been described as vague, ambiguous, and inconsistent proposals are made for new and additional principles not included in the Tentative Statement.

The article focuses on a court case involving Metropolitan Edison Co. related to restriction on dividends on common stock. A recent release of the U.S. Securities and Exchange Commission under the Holding Company Act raises several significant issues with respect to the reclassification of surplus and the legality and financial advisability of dividends on common stock. The Metropolitan Edison Co. is a Pennsylvania corporation and a public utility operating company doing business in eastern Pennsylvania. It is a direct subsidiary of NY PA NJ Utilities Co., which is controlled by the Associated Gas and Electric Corp., which in turn is controlled by the Associated Gas and Electric Co. A series of resolutions adopted by the board of directors of the Metropolitan Edison Company resulted in the transfer of $6,111,333.00 from earned surplus to stated value of common stock between 1925 and 1931. The Securities and Exchange Commission on December 1, 1939, issued an order to the Metropolitan Edison Co. to show cause why an order should not be entered to prevent the declaration and payment of dividends on its capital stock.

The article presents information about the use of realizable value as a measure of gross income. The point at which the income stream is most properly and conveniently measured is a question which has received considerable attention from economic, legal and accounting writers. The economic definition of income is usually in terms of consumers' goods; it may be defined as their output, or the purchase of them, or the amount consumed, or the reaction of the consumer to the utilization of such goods. Probably most economists regard the latter as the proper concept of income but discard it as a workable concept because of the impossibility of its satisfactory measurement. They, therefore, find it necessary to fall back on a definition in terms of the value of the services rendered to individuals and of the value of the goods consumed by them. The measurement of the income stream at this point is then assumed to be somewhat representative of the human reaction or satisfaction that results from consumption.

Reviews the book "Mathematics of Statistics," by John F. Kenney.

Reviews the book "Municipal Indebtedness: A Study of the Debt -to-Property Ratio," by Leroy A. Shattuck, Jr.

The past few years have given birth to a remarkably increased attention to the form and content of corporate reports to stockholders. Despite the interest in this area, very little research has been inaugurated to determine exactly what type of information stock holders desire. In a general way everyone knows that a stockholder wants the financial statements i.e. balance sheet and profit-and-loss statement. Beyond this, however, is a vast unexplored, uncharted wilderness. The additional information contained in the annual reports has ranged from absolutely no additional information to reports containing hundreds of pages of supplementary data. The annual reports of the Diamond Match Co., for example, range from 150 to 250 pages each year. This research was undertaken with a dual objective. First, to determine what information the investor desired in an annual report of a corporation and secondly, to formulate a "check-list" based upon the results of such a survey which might act as a guide to officers and direction in their yearly task of reporting to the stockholders.

The article focuses on professional examinations for students of accountancy. The following problems were prepared by the Board of Examiners of the American Institute of Accountants which were presented on November 13, 1941, as the first half of the Chartered Public Accountants (CPA) Examination in accounting theory and practice. The examinees were allowed six hours to solve these problems and weights were assigned as follows: problem 1, 12 points; problem 2,4 points; problem 3, 16 points; problem 3,16 points; problem 4, 14 points; problem 5, 6 points. A suggested time schedule is given below; Problem 1,60 minutes; Problem 2,15 minutes; Problem 3,120 minutes; Problem 4,90 minutes; Problem 5, 30 minutes. A depreciation schedule for auto trucks of a company was requested by an income-tax revenue agent soon after December 31, 1940, showing the additions, retirements, depreciation and other data affecting the taxable income of the company in the four-year period 1937 to 1940 inclusive.

The U.S. Investment Company Act of 1940 brings one more branch of private finance within the fold of governmental regulation. The accounting provisions of the Investment Company Act do not ignore the specific weaknesses which were disclosed in the Securities and Exchange Commission's (SEC) study of the industry. The Act emphasizes the public aspects of investment company accounting and reporting practices and in most cases leaves to the SEC the drafting of definite standards to correct known weaknesses. Many of the sections of the Investment Company Act touch upon accounting practices and reports, and numerous financial practices are permitted only if certain tests are satisfactorily met. Such tests are usually based upon the results shown by accounting reports. The impression created by the accounting provisions of the Investment Company Act is that investment accounting and reporting standards are improving, and that the function of the SEC is first to bring the stragglers up to the minimum found adequate for investors, and then to encourage improvements. These aims will require numerous rules and regulations.