There is an evident tendency nowadays to crystallize accounting standards and essentials of business and financial practice in the form of explicit legal statement. State corporation acts, for example, have been steadily becoming more exhaustive and technical with respect to such subjects as form of capitalization, issuance of shares, dividends, valuation of assets, sale of property, and so on. The following is an outline of points which may well be covered in the dividend code or which should, at any rate, be carefully considered by those charged with the duty of framing the dividend section or sections of the act. The source and measure of dividends is profit, current or accumulated, or,.in special cases, increase in value of assets not yet converted through sale or other disposition. Disbursements by corporations in excess of this measure are reductions in capital and should be labeled as such, and should be charged to stated capital or to a special contra account modifying stated capital. There should be no exception to this definition in the case of wasting enterprises such as mines.

The use of financial and operating ratios as a means of rendering accounting statements more intelligible and significant is a matter which deserves the consideration it has been receiving of late. This device certainly represents an important angle from which the problem of statement presentation and analysis can be approached and is worthy of every encouragement. And it is a thoroughly natural and appropriate device for the accountant to emphasize. In fact any system of accounts may be conceived as a set-up of business data in terms of their underlying relations. It is clear, accordingly, that in presenting final statements and reports the accountant must not be satisfied that his work is complete with the compilation of masses of debits and credits. Through classification and arrangement, charts and graphs, oral and written explanations, or other means he must see to it that all important relationships are disclosed and this means of course that all significant financial and operating percentages must be calculated and exhibited. On the other hand, the enthusiasm for ratios as such seems at times to go beyond reasonable bounds. What one has here after all is a very commonplace feature of accounting work, long recognized and used and no great good can come from exaggerating its significance and scope.

Reviews the book " Accounting Method," by C. Rufus Rorem.

The article discusses the relationship of selling expenses and other distribution costs to the problem of inventory value. It has been viewed that cost affects the supply prices of commodities, particularly in the long run, but the effective cost even in this connection may be found only in the case of a limited number of marginal producers. However, in the case of the representative enterprise it is true that market price is normally sufficient to cover all of the expenses of operation, including the so-called distribution costs, and something by way of a profit margin as well. The present practice of charging distribution costs directly into operating expenses without passing them through the regular cost system and thus into inventory values, is doubtless based in part on the assumption that such costs are not subject to inventory because they occur simultaneously with the sale or after the sale has taken place. The conventional idea of accountants that in no case can certain classes of charges which enter into business operation unmistakably but in ways unobservable by physical methods be set up as deferred items is subject to revision.

Journal Article Profits and Prices in Prosperity and Depression: Paton, Epstein, Mills Get access Theodore J. Kreps Theodore J. Kreps Stanford University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 51, Issue 4, August 1937, Pages 681–698, https://doi.org/10.2307/1881685 Published: 01 August 1937

Six of the nation's outstanding accounting authorities have been invited to prepare papers expressing the views for and against the proposition that depreciation need not be restricted to the amortization of historical cost. While accountants have long realized that their basic standard of measurement, the dollar, is a varying one, they have, with one conspicuous exception, declined to recognize, as generally accepted accounting procedures, departures from cost because of changes in the purchasing power of money. In the list obstacles to good accounting is the misconception, often entertained, and blindly fostered by many accountants, that an income statement should reflect earning power or be confined to current operating performance. By moving depreciation expense up or down, according to predictions of the moment, a more accurate earning power or operating performance is said to be reflected in the net result. A good deal of mumbo-jumbo necessarily attaches to the process, for to them earning power or operating performance is a nebulous thing, visible only to initiates such as forceful corporate managements and accountants of discernment.