Accounting, Accounting Methods

One of the tasks of this paper is to draw attention to Fritz Schmidt and his pioneering work in current value accounting which anticipated essential features of both Edwards and Bell's (1961) work by 40 years, and the current cost legislations and standards of the United Kingdom, the United States, and Canada by roughly six decades. Above all, I am trying to relate Schmidt's work to that of Edwards and Bell, thereby clarifying some misunderstandings that still surround this relationship. Schmidt needs a champion on the North American continent, and I have tried to assume this often misunderstood task. By direct reference to and translations from Schmidt's magnum opus , I attempt to demonstrate that Schmidt's theory possesses the following qualities: It distinguishes clearly between general purchasing power adjustments and current value adjustments. It does eliminate realized holding gains (cost savings) from the operating section, and presents an income concept equivalent to the “Current Operating Profit” of Edwards and Bell. It clearly separates operating gains from holding gains (though rarely endeavors to separate real from fictional holding gains, since it favors the physical capital maintenance basis of income measurement). It applies current costs also to manufacturing operations. It does not fail to deal with the current costs of other inputs, and generally abandons the historical cost basis. Résumé. Un des objectifs de cet article, est de faire ressortir le travail de pionier de Fritz Schmidt sur la comptabilité à la valeur actuelle qui anticipa les caractéristiques essentielles des travaux de Edwards et Bell (1961) de 40 ans et les lois et normes sur le coût actuel du Royaume‐Uni, des Etats‐Unis et du Canada d'approximativement six décades. Avant tout, j'essaie de relier les travaux de Schmidt à ceux de Edwards et Bell, afin de clarifier certaines méprises qui existent toujours relatives à cette relation. Schmidt a besoin d'un champion sur le continent nord américain et j'ai essayé d'assumer cette tâche souvent mal comprise. En me référant aux travaux de Schmidt et à certaines traductions, j'essaie de démontrer que la théorie de Schmidt possède les qualités suivantes: Elle distingue clairement les ajustements du pouvoir général d'achat des ajustements de la valeur actuelle. Elle élimine les gains de détention réalisés (économies de coûts) de la section exploitation et présente un concept de revenu équivalent au “Bénéfice hors postes non courants” de Edwards et Bell. Elle sépare clairement les gains d'exploitation des gains de détention (quoiqu'elle ne s'efforce pas de séparer les gains de détention réels des fictifs, puisqu'elle favorise la base de la préservation de la capacité de production pour mesurer le revenu). Elle utilise les coûts actuels aussi pour les exploitations manufacturières. Elle n'oublie pas de traiter des coûts actuels des autres intrants et abandonne de façon générale la base du coût historique.

The article discusses methodological preconditions and problems of a general theory of accounting. The last fifteen years of accounting history seem to be part of a transition period replacing the loose traditional approach by more rigorous methods. Although spanning over considerable time this transition continues, most likely transgressing into the eighties, and promises to cause a major break in the evolution of our discipline. From time to time, the need arises to look at past research activity from the bird's perspective with the aim of an overall survey. Such is the intent of the following investigation which tries to fit recent research efforts into this five-point pattern, and which examines major methodological and related problems still to be solved before this phase of transition is completed. Prior to such an investigation it may be opportune to avoid some misunderstandings. The ultimate purpose of accounting is to provide managerial information systems satisfactory or even optimal for specific needs. That this should be done through systematic testing and by means of an instrumental theory commensurate to needs as well as scientific means at our disposal, hardly appears to be an unreasonable quest.

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.

Reviews the book "Linear Programming and the Theory of the Firm," by Kenneth E. Boulding and W. Allen Spivey.

Reviews the book "The Annual Income of an Enterprise and Its Determination," by Jaakko Honko.

Reviews the book "On National Accounting," by Ingvar Ohlsson.

This paper draws attention to the increasing use of the concept of "model" in accounting literature. It distinguishes between economic models and accounting models, defines the latter, demonstrates the presentation of a whole accounting cycle in the mathematically formal way of an accounting model, discusses by way of a practical example the independent and dependent variables in such a system and shows how the structure of accounting models is graphically presentable. It finally gives, with the aid of some balance-sheet-ratios, an example of combining accounting models with economic models and indicates the application of this approach to a prospective area which still can be considered to be the accountant's. The paper, however, intends to be nothing more than an experiment. There is no denial that the conscious and systematic application of mathematical models to certain branches of economic science opened new paths and perspectives, not without enriching our insight into many a problem. It therefore seems to be comprehensible if accountants try to dabble and experiment in this apparently promising field.