The revised statement of "Accounting Principles," prepared by the Executive Committee of the American Accounting Association and published in the June 1941 issue of "The Accounting Review," is a decided improvement over the statement of principles previously published in June 1936. Nevertheless, it still contains spots where further burnishing would appear to contribute both to desirable refinement and to greater harmony between the principles and the fundamental thesis upon which they are based. In the preparatory note the Committee states that "In the corporate field the most important use of accounting lies in the preparation of statements of financial position and of operating results." In the basic assumption the Committee also refers to the accounting statements as financial statements. The term financial position is equivocal. While it implies that it is the general monetary position of a firm that is being presented, or that a firm's status is being exhibited in monetary terms, the financial position presented in the balance sheet is a specific variety of financial position.

The 1939 Income-Tax Act extends to all taxpayers the privilege of evaluating the final inventory on a first-in, last-out basis. The corollary permits the cost of goods sold to be determined in accordance with the assumption that goods purchased last are sold first. Official recognition is thus given to an additional method of evaluating inventory. The new method does not solve any of the technical difficulties encountered in pricing the goods on hand at the close of the period, since the procedure to be followed is merely the reverse of that called for by the last-in, last-out method. It therefore contributes nothing in the direction of simplicity. Effective support, if such exists, rests in some supposedly desired resultant in either the balance sheet or the income statement. It is probable that a predetermined end motivates the advocates of the first-in, last-out method: the desire to influence managerial decisions through a restatement of profits. That such a purpose is proper motivation for accounting procedure is questionable. Certainly it deviates from the goal of historical accounting; namely, the recording and presentation of facts.

Time was when accountants looked upon the balance sheet as a presentation of the current financial position of a business enterprise. They thought of the left side of the statement, when it was presented in account form, as a summary of the assets of the enterprise. It is true that they avoided the inclusion of intangibles whenever possible but they made a virtue of that just as banking institutions made a virtue of writing their buildings and physical equipment down to one dollar. In the taking of inventories the accountant insisted upon a lower-of-cost-and-market valuation and he made a virtue of that too. In an earlier period of business enterprise, balance sheets prepared upon the basis of traditional principles and techniques did show assets and liabilities and proprietorship within the limits of accuracy demanded by the business management of that time. This general character of the valuation process is not peculiar to economic valuation. The present article is not the place for a general discourse on value but it may be said in passing that all valuation involves a reconciliation, integration or adjustment of different interests.

While the corporation has contributed much to economic development, it is not fundamentally an economic entity, nor is the legal corporation fundamentally an accounting entity. For purposes of economics and accounting, the corporation might well be viewed as a group of individuals associated for the purpose of business enterprise, so organized that its affairs are conducted through representatives. Numerous illustrations may be cited of instances in which this latter, or representative, viewpoint has been taken even by the law and the courts and in its attempt to control the development of trusts, the law has frequently found it necessary to go behind the corporate fiction and prescribe penalties for corporate officers as well as for the corporation. The income-tax law and regulations dispense with the corporate entity in the principle of constructive ownership, in the imposition of a tax upon corporations for improperly accumulating surplus and of a surtax on personal holding companies.

This article presents an analysis of the tentative statement of accounting principles. Most objects are subject to different evaluations. Thus one man may view war as a glorious opportunity for the expression of the noblest sentiments of man. Another may regard war as a creation of the devil wherein mankind reverts to barbarism. But for both men the historical facts regarding war, when they are all discovered and presented, are the same. Differences appear in evaluation, so too with accounting. In formulating fundamental postulates to govern accounting procedure, therefore, one must be guided by the purposes which the accounting procedure is designed to serve. In the past the viewpoint and evaluation of the owner have been accepted as dictating basic principles. Accounting has been conceived almost entirely in terms of historical cost and historical transactions. In the usual case assets purchased may be justly conceived as costs applicable to the revenue which they are to assist in earning during the remainder of theft lives. The accountant frequently encounters difficulty, however, in allocating that cost to the respective and more or less arbitrary fiscal periods which the life of any given physical asset encompasses.

Reviews several books on business accounting. "Changing Concepts of Business Income"; "An Inquiry Into the Nature of Business Income Under Present Price Levels," by Arthur H. Dean; "Business Income and Price Levels, an Accounting Study," by George O. May.

Reviews the book "Surplus and Dividends," by Henry Rand Hatfield.

This article focuses on the policies and procedures of American Accounting Association Committees. To a considerable extent, these regulations represent the rules under which the present and previous Executive Committees have operated. They are not intended to bind future Executive Committees, since each succeeding Executive Committee has the right to determine the rules under which it, the officers, and Association committees will operate, within the by-laws. The President may be given the authority to create new education task committees with the advice of the Joint Committee on Education. It is recommended that the chairmen of the underlying task committees be ex-officio members of the Joint Committee on Education. With the exception of the Director of Research, a person should be limited to membership on one committee, in addition to membership on the Joint Committee on Education, the Membership Committee, the Nominations Committee, and the Executive Committee. Only members of the American Accounting Association should be appointed, committees may have non-member consultants, however, if the Executive Committee approves the idea and the consultant.

The article focuses on recommendations presented by the American Accounting Association's Committee on Concepts and Standards, regarding the use of term "reserve" in accounting. The committee recommended that the term reserve should not be employed in published financial statements of business corporations, appropriations of retained income should not be made or displayed in such a manner as to create misleading inferences, and the reserve section in corporate balance sheets should be eliminated and its elements exhibited as deduction-from-asset, or liability, or retained income amounts. In general usage, outside of accounting, a reserve is a fund of cash or other assets. In accounting the term has been used to caption a variety of balance sheet items including segregated retained income, segregated asset, asset valuation and asset amortization amounts, and liabilities. It has been recommended that the word reserve be restricted to captions describing appropriated retained income. The committee believes that the popular understanding of financial statements, and the thinking of the profession, would be promoted by abandoning the term.