Knowledge that Transforms

This article informs about the 18th annual convention of the American Association of University Instructors in Accounting was held in the Benjamin Franklin Hotel, Philadelphia, Pennsylvania on December 28 and 29,1983. The annual dinner was held on Tuesday, December 28, at 7:00 P.M. Following the introductions, the president appointed an auditing committee consisting of E.J. Filbey, H.H. Baily, and G.E. Lukas, all of the University of Illinois. The secretary-treasurer then read his report for the year, and also reported on the meeting of the executive committee held earlier in the day; the executive committee had instructed him to consult with E.J. Filbey in regard to the safety of the funds of the Association in Building and Loan stock and notes, and, if it appeared desirable to do so, to leave the investing of surplus funds unchanged. The matter of subscription rates was delegated to the editor and secretary. The secretary was instructed to circularize the executive committee for suggestions looking toward an increase in the circulation of the Accounting Review.

The article focuses on the report and accounting approach. Undoubtedly the most difficult task which confronts the elementary accounting instructor is the presentation of an adequate concept of the balance sheet. The beginning student requires no great amount of imagination in perceiving that the typical business enterprise acquires and owns assets of various types. Furthermore, the thought that these resources may and do become charged with debts is comparatively simple to master. The difficulty arises, however, in distinguishing between the objective realities of assets and liabilities and the subjective reality of the proprietorship element. Again, the student in the first course of accounting perceives readily that the assets do, or should have some value to the concern and that these values are capable of expression in terms of the monetary unit. Furthermore, he has no difficulty in realizing that the initial value placed upon a resource is its purchase price. Difficulty is encountered, however, with the problem of revaluation which arises in the preparation of each periodic balance sheet.

A course in accounting systems is usually offered by a university which permits students to specialize in accounting. The subject, "Accounting Systems," is at the same time one of the most difficult and the most valuable that the student specializing in accounting is called upon to master. Its difficulty and also its value lies not so much in its content as in its method. A good course in accounting systems is perhaps the most rigorous and comprehensive test to which a student's knowledge of accounting principles may be subjected. From the standpoint of methods followed in teaching accounting systems, there are no doubt many approaches in present use. No study has been made, in so far as is known, of the methods pursued in teaching courses in accounting systems in the various schools of business. In the opinion of the author, however, there are at least three possible approaches. In the first place, one may present the subject as a course in methodology. That is, from the standpoint of the method which should be followed by an accountant in undertaking the preliminary investigation and subsequent installation of an accounting system.

Beginning students usually find their introduction to nominal accounts and accruals the hardest spot in their first semester. A large part of the confusion may often be due to the undigested condition of illogical material presented earlier, nominal accounts and accruals themselves should not be hard to grasp. But even though they do present difficulty to the student they should be strongly stressed very early because in them is the essence of the accrual basis of accounting which accountants are so anxious to see replace the cash basis. In fact so completely do nominal accounts and accrued items embrace the heart of modern accounting that they might well be made the foundation of the introductory work itself. This would mean a start based upon the Income Statement rather than the Balance Sheet. Instruction in elementary accounting is still very much under the influence of age-old traditional methods of teaching bookkeeping. Bookkeeping instruction traditionally aims at teaching a balanced recording methodology, it appeals to imitative faculties rather than reasoning processes, it over-simplifies a naturally complex subject by artificial rules of thumb, it introduces personal debts very early, presumably merely because external transactions and personal accounts bulked large in early bookkeeping.

Reviews the book "Analyzing Financial Statements," by Stephen Gilman.

Reviews the book "Essays in Biography," by John Maynard Keynes.

Reviews the book "Proceedings of the Fourth International Congress on Accounting."

Reviews the book "The Development of Economics," by William A. Scott.

The British were the first to face the problem of finding a way to control unsocial individualism without resorting to absolute prohibitions. Early in the nineteenth century the government was under pressure to relax the prohibition of company promotion which dated from 1720 and to make the incorporation of joint stock companies somewhat easier. But the thought of simple repeal of the Bubble Act brought visions of another disastrous era of unrestrained stockjobbing and wild speculation. The problem was to find a way to yield to the pressure for free incorporation without opening the way for former excesses. The answer was found in breaking the privacy of accounting information. This was the British approach in the early nineteenth century to a control over private business affairs through semi-public accounts. Attempts at control in the United States came later and seem in comparison rather unorganized. The U.S. have had nothing quite as effective as the British registration of proposed incorporations.

The fault of having two bases for dividend is that they may be considered identical when that is not the case. With two bases in existence the way is opened for creating an excess of assets by revaluation and for paying dividends out of prior profits while allowing revaluation surplus to take the place of the profits withdrawn. Recent experiences have suggested the need for some measure of enlarged control in the public interest over corporation finance and operation. For the most part these control measures have been aimed at the issue of securities, that is, aimed at controlling promotion. But promotion is secondary to the expectation of profits and expectations of future profits rests very largely upon the current and recent past experience in producing profits. It is clear therefore that a sound legal and accounting determination of real profits has much more significance than has the theoretical preservation of a margin for the protection of creditors of a limited liability corporation.