Abstract The American Accounting Association's follows dual objectives of fostering accounting research and improving accounting instruction. This article briefly summarizes each of the major activities that were carried on during the year 1961. The high quality of published articles was maintained in 1961. During the year more than 80 articles were published in addition to the professional examinations, association notes, and book reviews sections. The Membership Committee under leadership of Ralph F. Beckert had a very successful year. As a result of their efforts, over 1,000 new members were obtained. In 1961, seven education committees functioned under the general direction of Vice-President Norton M. Bedford, who also served as Chairman of the Joint Committee on Education. The Continuing Education Committee was asked to investigate the scope and nature of programs of formal study after a person has launched upon a career in accounting, and to inquire into the matter of suitable forms of instruction.

Abstract Efforts to induce accountants to give recognition to the distorting effect of inflation in the financial statements and reports that they prepare have met with little or no successs. Proponents of the inclusion of such information in financial reports might advance their cause more effectively if they joined in the advocacy of steps that do not digress very far from established and conventional practice. It is suggested that such a first step might be the inclusion in financial reports of a com- paratively non-technical, brief explanation of the extent to which inflation has distorted conventionally-calculated net income. Such an explanation might include mention of any loss from the depreciation of net working capital, and any gain from the liquidation of noncurrent liabilities. The source and application of funds statement (if properly amended) will serve to provide many of the figures that need to be adjusted in order to estimate the magnitude of the inflationary-caused distortions of reported operating results. A revision of the statement to exclude inventories and current prepayments from the definition of funds (net working capital is recommended. The results of the computations of the type suggested cannot be regarded as mote than reasonable estimates. Their credibility is less likely to be challenged if they are reported (in round amounts) are no more than this. Accountants who profess to pay allegiance to the principle of full disclosure can do, at least this much.

Abstract From a tax standpoint, the concept of business income as it exists as a part of the "generally accepted" principles of accounting has some notable weaknesses. The defects are associated primarily with the entity concept, the going concern postulate, and the period convention. To a lesser extent, there are faults connected with the manner in which the realization concept, the "rule of conservatism," and the "maintenance of dollar capital principle" are applied. Most of these deficiencies might be absent or minimal if taxable profit was conceived as an individual matter and considered to arise only after there had been a recovery of the money (or equivalent) that an individual had invested in a profit seeking venture of any sort. The manner of calculating profit, unrecovered investment, or loss would depend, in part, upon the type or nature of the investment. The concept embraces the idea that the tax on profits arising after a short recovery period should be larger than the levy on profits realized after an extended period of investment recovery. There is reason to suggest that a number of desirable consequences might attend the use of such a method of measuring profit for tax purposes. There might be greater equity in taxation in several respects, less risk to investors, and resulting stimulation to the national economy. The danger of inequity in certain other cases, and the possibility that the use of such a method might tend to impede the movement of capital funds are the major negative potentials. In spite of these defects, it is contended that the nation would benefit if means could be found to effect a transition to an investment-recovery-first basis of measuring profit for tax purposes. At the least, the concept might have value as a standard or viewpoint to use in the analysis of the prevailing tax requirements, and in the evaluation of proposed reforms in the tax system.

Abstract Financial accounting can be regarded as essentially a process of keeping historical records of financial stewardship. Since working capital is such an important matter, the records should be maintained and various statements prepared in a manner that will not obscure the movement of working capital funds. The calculation of periodic income is a secondary function. This viewpoint leads to what may be termed a source and application of funds concept or philosophy of financial accounting. It involves nothing essentially new except a shift of emphasis. Most of the current principles and practices can be regarded in this light. An unqualified adoption of this viewpoint suggests some modifications of current practice. Both the income statement and the balance sheet may be restated to emphasize the fund change, or fund flow, aspect of business undertakings. The source and application of funds statement itself gains in significance. The double entry bookkeeping process may be invested with a source-application meaning. Debits (apart from those made in the income summarizing process) can be interpreted as expressions of applications of funds, and credits (with the same qualification), as sources. It this is done, certain matters that are sometimes formally recorded would not be recognized in the accounts proper. The source-application of funds viewpoint narrows the gull between accounting for business organizations and for non-business undertakings, as well as for fiduciaries. Without adopting or accepting all of the possible variations of existing practice that have been suggested, the source and application of funds philosophy may be used as merely one measure or standard by which accounting principles and practices, existing and proposed, may be evaluated.

Abstract The article presents information on merchandise turnover and the method of computing it. Data and statements are of limited usefulness unless they are properly interpreted. To assist and facilitate interpretation, particularly of the balance sheet and income statement, various ratio and percentage analyses frequently are made a part of, or appended to, these reports. One of the most significant of these ratios to merchandising businesses is the one that shows the average number of times the inventory was replaced during a given period. It is usually called merchandise turnover or stock-turn. The customary method of computing inventory turnover is to divide the total cost of goods sold by the average value of goods on hand during the period. It is recognized that the turnover figure obtained by the use of the suggested procedure is subject to the same weakness as that secured by the conventional method, in that it will be distorted somewhat if the period under review has been one that included sizable price changes.

Abstract This article presents information on cash movement, which should be the foundation of periodic income measurement. It is contended that most people think that periodic business net income or loss is closely linked to certain of the movements of cash into and out of the business, and that, while a simple periodic matching of cash receipts and disbursements rarely gives a meaningful measure of net income, cash movement can be objectively measured and is a far better starting point for income determination than value, a highly subjective matter. It is further contended that even if the proposals to link value changes closely to income measurement were sound in principle and feasible, the likelihood of their gaining widespread understanding and acceptance is negligible. If these contentions are valid, it is incumbent upon accountants to stray no further than absolutely necessary from cash movement in calculating periodic business income. It is noted that problems rarely exist in cases where there is a very close correlation between cash movement and revenue and expense realization or recognition.

Abstract This article presents several news related to accountancy published in the journal of "The Accounting Review." Two substantial contributions to the American Accounting Association Fellowship Fund were accepted on behalf of the Association by President Charles J. Gaa at the annual meeting in Columbus. John P. Goedert, executive partner of Alexander Grant & Company, presented a check for $5,000 contributed by his firm. Mr. Goedert called the contribution a business investment in the future of our profession." He cited recent surveys indicating a shortage of qualified accounting teachers despite large enrollments of students in accountancy and increasing demands for trained accountants by industry, government, and public accounting firms. The accounting research division of the American Institute of Certified Public Accountants has added two items to its active research agenda: Accounting for the Costs of Pension Plans and Cash Flow Statements and Analysis. Anyone interested in submitting comments, suggestions, or other material for the use of the research staff is invited and urged to do so. Advance notice of the intent to participate in the projects in this way will be appreciated. All correspondence relating to the studies should be addressed to Mr. Maurice Moonitz, Director of Accounting Research, American Institute of Certified Public Accountants, 270 Madison Avenue, New York.

Abstract In the area of consolidated statements, as perhaps in no other, there is the danger that the student will place full reliance upon working papers, elimination patterns, and technical procedures as demonstrated in the classroom and textbook in achieving a set of answers. If the student simply applies mechanical techniques, without thinking of the consolidation framework set by the past or the frame-work to be provided for the future, he will be unable to offer any theoretical support for his conclusions and will not possess any real confidence in them. Even worse, if the student leaves the matter at this stage, be may feel that certain areas in accounting are beyond his grasp, and may thus develop a basic insecurity. The possibility of any such insecurity can be avoided by the careful presentation of this subject matter.

Abstract The size, diversity, and complexity of financial activities of present day Federal Government and the need for efficient management and reporting of these activities is of vital concern for every citizen. A purposeful, productive campaign has been underway for some ten years to modernize the entire concept of management in government. This movement has been spearheaded by officials within government and has received impetus and support from citizens' groups, notable among which are the various Hoover Commission Task Forces. Each individual, each institution, and each collective group of individuals has a responsibility to contribute to the effort of achieving effective management of taxpayers' money. Colleges and universities can be particularly helpful and can contribute substantially to this effort by expanding their curricula to include more comprehensive instruction with respect to the application of modern management principles and practices, especially as these relate to activities of the Federal Government. The writer has presented in this paper the framework of a suggested graduate course which would emphasize the management controls necessary to carry out effectively objectives of the legislative and executive branches of the Federal Government. The suggested course might well supplement or complement other Business Administration, Political Science, or Public Administration offerings customarily given by colleges and universities.

Abstract More than 600,000 young men and women are expected to pursue programs in collegiate business education by 1970. This will double the present enrollment, according to the American Association of Collegiate Schools of Business. Unless drastic steps are taken there will be a shortage of 2,800 teachers in business schools and departments alone. Accounting departments will be among the first to feel the impact of this "impending tidal wave" of students. A round table discussion to consider what accounting departments could do to meet the many problems associated with increasing enrollments was conducted at the 1957 American Accounting Association Convention. In preparation for the session the chairmen undertook an analysis of present teaching practices in elementary accounting throughout the country in the hope that the information collected would be useful in evaluating the different solutions that might be proposed. At the same time, accounting teachers should be preparing themselves for the parts which they are to play in planning their participation in the education of young people in and out of college about the developments in the field of electronic data processing. The purpose of this article is to give accounting teachers a point of contact with electronic data processing, omitting specialized terms and techniques, with sufficient information, so that interest may be created and action may be taken in changing curricula in accounting.