Knowledge that Transforms

Reviews the book "Management Accounting," by Robert N.Anthony.

This article focuses on mathematics in the accounting curriculum. In recent years, the curriculum followed by the accounting student has been the subject of much study and discussion. Most of these studies have reached the conclusion that present requirements in mathematics are inadequate. There is little doubt that these requirements need strengthening, but there is a question of how this should be accomplished. Some schools have attempted to meet this problem by increasing tile number of semester hours of mathematics required for a degree, a few requiring one semester of calculus. This seems to be an unsatisfactory solution to the problem. Courses in mathematics have traditionally been designed to meet the needs of those who are following a curriculum in science or engineering. The redesigning of the mathematics curriculum to meet the needs of business students will require the highest level of cooperation between the business and mathematics faculties. The business teachers must help in outlining the courses and the mathematician must be willing to teach this material with examples from business and economics.

This article raises one of the top problems of present-day accounting; this is the purpose of the accountant's work. The question is whether the accountant will continue to operate within a system of his own design with little attention to the effects of the results attained; this reflects the widely held opinion that the accountant's job is to prepare statements and that it is up to those receiving the statements to interpret them in a manner suitable from their point of view. the other approach to the accountants work is to consider it as a vital part of the information system of the enterprise; then it is up to the accountant to integrate his specific system into the broader one and attempt to develop data which should be of greatest value to operating management in its task of making the best possible decisions. The author of this article apparently shares the first point of view. He pays no attention to managerial requirements but proposes a technique which, although consistent in itself, is bound to confuse rather than to clarify the essential issues. His model is interesting from a purely theoretical point of view in the sense that it emphasizes one particular approach to the problem. It was suggested earlier in this paper that there is nothing wrong with this type of model as long as it is used in the realm of theory only. But to apply it to the solution of practical situations without carefully considering the practical needs of management could he very harmful. There is an urgent need to reduce the gap between the task of accounting to serve managerial decision making and the somewhat narrow and self-centered attitude of many accounting practitioners who are in danger of losing sight of those really important tasks of the profession.

Reviews the book "The Appraisal of Capital Expenditures," by C.G. Edge.

As the basis for far-reaching decisions on the capital, labor, consumer and supply market, accounting records influence our economic life to no small degree. These decisions are made of course, upon the assumption that the data recorded in the accounts are relatively correct. In an economy in which the government exercises due care with its fiscal and economic policy and protects the currency from loss of value, the accounting data can generally be relied upon; however, in times of inflation, as well as in times of deflation, the accounting system fails to show correct figures. This unreliability is due to the presupposition upon which the accounting system works: namely, that the unit of currency is always equal in value regardless of time. That this reliance upon historical cost can lead to undesirable results has been demonstrated very well in the Twentieth Century when most of the European countries experienced extreme inflation following World War II. Austria was one of the countries which experienced such an inflationary period. Here, however, sweeping changes were made in the income accounting for tax purposes. These changes had a marked effect upon and were greatly responsible for stabilizing the financial structure which has formed the basis for the greatly improved economy Austria is enjoying today.

Liberal legislative policy has resulted in the enactment of provisions in many states which allow corporations to declare dividends from sources other than earned surplus. Distributions to shareholders from these other sources are of three types: (1) current earnings dividends, which are permitted to the extent of all or a portion of current net income when a corporation has a deficit; (2) depletion dividends, which may be distributed to the extent of the increase in net income which results when the depletion charge against revenue is ignored; and (3) dividends charged to paid-in surplus. In those states which allow current earnings and/or depiction dividends, consistency requires that paid-in surplus be made available as a legal source for cash or property dividends since distributions from any of these sources result in an offset to or direct reduction of paid-in capital.

Reviews the book "Income Tax Procedure," by C. Rollin Niswonger and James B. Bower.

Periodic budgeting, as practiced in industry and taught in the accounting curriculum, combines estimates by individual departments in a process of coordinative aggregation. The purpose is to supply management with a financial plan for future operations. Frequently, budgeting is charged with the more ambitious task of finding the most profitable course for an enterprise. If this means selecting a combination of managerial policies which optimizes the long-term profit of the enterprise, the above definition of the purpose of this discipline seems to overstate the potential of traditional budgeting activity. It makes the layman believe that this area of accounting is in a position to determine optimal solutions. Undoubtedly this is not the case since budgeting traditionally neither applies any algorism to optimize the long term profit function nor provides any means for determining and comparing all the alternatives resulting from the innumerable factor and policy combinations feasible for an enterprise.

In this article author examines questions of accounting standards. In examining the question of accounting standards, uniform or otherwise, it is necessary to consider the fundamental nature and purpose of accounting. Author starts with the broad definition of accounting as the measurement and communication of financial and other economic data. Its end product is information. The end purpose of this information is to assist someone in formulating judgments and making decisions. Communications of economic data generated in any one organization may be for internal, or for external, purposes. Standards used in the measurement and communication of data must be practicable for the issuer and useful to the user. They must be practicable in that, providing always that the accountability requirements of stewardship are met, they must be capable of being applied without undue effort and delay by the issuer in originating the data. Some accounting standards might preferably differ, for example, between the electric utility serving a huge metropolitan area, and the new electronic company whose whole future depends on its research.

Reviews the book "The Variable Annuity, its Impact on the Savings-Investment Market," by Cedric V.Fricke.