Knowledge that Transforms

Reviews the book "New York Laws Affecting Business Corporations," edited by J.B.R. Smith.

The article focuses on operating deficit and paid-in surplus. There are two distinct but closely allied problems in connection with the relation of operating deficits and dividends. The first is whether dividends may be paid from subsequent profits despite the existence on the books of an operating deficit. This question has been answered in both ways by statutory provisions and by accountants. If the answer is in favor of allowing dividends despite a previous operating deficit, the second question is immaterial. But if it is held that dividends may not be paid out of subsequent earnings in face of an existing operating deficit shown on the books, there still remains the second question. In estimating the net profits available for dividends, must the deficits of a past year be carried over to the profit and loss account of the following year or may a past operating deficit be removed through charging it against paid-in surplus, so that the deficit has no effect on the showing of profits available for dividends in subsequent years.

The article presents a survey report of the status of the cost accounting in the colleges throughout the U.S. To secure the opinion of those actively engaged in the work, a number of letters were sent out to men in charge of the cost accounting work of large industrial establishments. The answers received are probably more confusing than those of the college instructors. A summary of the replies received from nine cost accountants shows that three out of the nine concerns think that a practical training in cost accounting cannot be given in the college classrooms. In answer to the question of how cost accounting instruction was defective in their collegiate or business education, the cost accountants unanimously condemned work because theory was not combined with practice. In view of this present confused status in the content of cost accounting instruction in collegiate schools of business, it seems desirable that the Association of University Instructors in accounting, appoint a committee to collaborate with the National Association of Cost Accountants in preparing suggested system to meet the varying needs and conditions under which cost accounting is taught.

The article focuses on creditor's protection and stockholder's responsibility. The extent and nature of the responsibility of stockholders is determined very largely by their own contractual agreements with the corporation and by the contracts between creditors and the corporation. Along with changes in the evolution of the corporation there have been equally significant changes in these contracts. Notable among these in recent years have been those accompanying the employment of no-par stock for both preferred and common securities. No-par stock with its greater flexibility has presented many new problems in stated capital and stockholder responsibility-creditor protection. These, too, reflect changes in the contractual relations of stockholders and corporations and whether agreeable to creditors or not, they affect creditors' margin of protection. Although no-par stocks may appear as a distinct phase in the evolution of corporation securities, this may well be doubted. As pointed out later, they simply carry out the natural trends.

At the University of Pennsylvania, an accounting plan has been developed which fundamentally arrives at a deficit or surplus for each department, which in turn is closed into the general deficit account. One obtains figures upon the instructional salaries, other salaries and wages, and departmental current expense and distribute the general overhead of the various departments upon various bases, so that the cost system, which appears on the surface to be quite an elaborate set-up is in reality very simple. It is realized that budgeted expenses do not necessarily have any relation to the income or receipts of any school or department due to the inter-relationship of the several faculties of instruction. It may be also noted that the budgets of the various departments do not include a charge for the building expense, general expense, or for instruction furnished by other school or departments. Separate budgets are of course prepared under budget administrators for building expense, and the various items finally closed into general university expenses. Later in this paper is a discussion of the method of charging the instructional expenses to the various schools and departments.

Reviews the book "Kemmerer on Money," by Edwin W. Kemmerer.

Failure to set standards may succeed in postponing the day of reckoning, but not for long. Regulation of the U.S. Securities and Exchange Commission affecting corporate reports, no matter how wise may be the language in which they are couched, will cause the accountant many perturbations. The accountant will not be ready for them. The accountant will again consult his attorney. A committee of the American Institute of Accountants will protest mildly the Commission's unnecessarily harsh and untrustful attitude toward the profession. There will be a revival of talk to the effect that after all the old order was best, the securities act and the securities exchange act need drastic modification. But nobody will come forward with concrete suggestions as to the precise nature of the modification needed. And the failure to accept the public generally as a third party to every accounting engagement will continue for as long a time as possible. Lawyers and accountants will cry unrestrainedly on each other's shoulders. But regulations will be followed and thus a new era will dawn for the accountant, however weakly and fatuously he may resist its coming.

This article discusses the problems in determining total cost of distribution. It is not the purpose of this paper to discuss a functional comparison of costs within one institution, such as a wholesale grocery house. Neither is any attempt made to compare the costs between two or more institutions operating at the same level in a particular trade; for example, clothing chains. Because of the limitation of time, neither will it be possible to do much more than point out the objectives, methods, and problem connected with total distribution cost analysis. The solution will have to wait upon the further study and experimentation of accountants and marketing men. Many people fail to realize that distribution costs, such as those for transportation, storage, financing, and selling, are incurred long before a product is ready for final processing. A number of the best known marketing institutions handle raw materials and semi-processed goods prior to final manufacture. A study of the accompanying bar charts, however, discloses the fact that distribution costs start with the selling costs of the manufacturer and do not include an additional seven cents, classified as elevator margin and transportation from the producer through the elevator to the manufacturer.

Reviews the book "Capital and Interest," by Montgomery D. Anderson.

Reviews the book "Business Budgets and Budgetary Control," by A.W. Willsmore.