Knowledge that Transforms

Abstract The United States government is the largest, the most extensive, and the most diversified business enterprise in the world. Its financial operations involve practically every kind and type of situation found in private business and in other forms of government, and many conditions not elsewhere found. Hence no simple or direct statements of the problem or of its solution are possible. Yet the purposes of financial reporting in the Federal government are the same as in any other government or in any private enterprise in which the public is materially concerned. They are to compile and disseminate information concerning financial operations and condition, for the benefit and guidance of management, investors, and the public. To these ends, each phase of the accounting and reporting should be directed. To be of the most service, the reports should be based on uniform standards and terminology consistently followed, should be comprehensive and truly informative, and should be rendered promptly and regularly.

Abstract Reviews the book "Modern Corporation Finance," by William H. Husband and James C. Dockeray.

Abstract The article discusses accounting for intangible assets. Intangible assets are generally grouped into two classes: those subject to amortization and those that are not. Practically all of the intangible items are subject to amortization with the exception of goodwill, trade names and trademarks. At the time of acquisition, the valuation of intangible assets is based on actual cost, either cash or equivalent value. After original cost has been established on the books, the intangible items are valued at cost less amortization, provided the class of intangible property is subject thereto. Where a right or privilege is purchased for cash, no one will object to the listing of that intangible item in the accounts of the company at its purchase price. Also if legal fees, models, drawings, development expenses and defense costs under a litigation proceeding are expended in order to acquire, develop, or protect an asset of this nature, the total expenditure can be capitalized as the cost of the asset. When intangible assets are not subject to amortization, yet they have been paid for and the values duly recorded, the question arises as to what shall be done with these amounts as the years go by.

Abstract If the reserve is established as a percentage of receivables it makes little difference how a bad-debt recovery is treated as a credit to the reserve account or as a credit to an income account. A balance sheet at the end of a period would not be affected by a choice in the method of treating a recovery during the period. To the extent that a recovery is credited to the reserve account during the period the usual addition to the reserve at the end of the period will be less. The final balances in the accounts for outstanding receivables and the reserve will not be affected by a choice in the method of recording recoveries. Furthermore, net profit would be the same in either case. In one case a larger bad debt expense would be exactly offset by the income of bad debt recoveries. If the reserve is on a budgetary basis, increased by a percentage of sales, the question of bow to treat a recovery becomes pertinent because the balance sheet and net profit will be affected by the decision. A credit to the reserve account is conservative but theoretically the answer to the question will depend on how the percentage was determined.

Abstract A business unit is one of the thousands of temporary storage tanks through which capital flows in the circulatory system by which it gives economic life to the nation. The current flood of literature and the numerous disagreements and contradictions with respect to what are accounting principles make one hesitate to attempt another such statement and suspicious of the reception such as attempt may receive. This article will deal only with a skeleton outline of what the author believes to be the more basic accounting principles underlying and, therefore, controlling the operation of the bookkeeping mechanics as a means of discovering and analyzing what appear to be the causes for the existence of a neglected area of accounting valuation. Double entry is based upon the concept of duality of a single business property. This duality is created through the separation of business properties from their actual owners by placing these properties in the possession of a fictitious business entity, which holds and operates such properties under an assumed trust arrangement between the business entity and the legal owners.

Abstract The article discusses some problems of last-in-first-out method of inventory valuation. It must be recognized that accounting for inventories on either a physical or a value basis is not and never can be an exact science. Quantities and values are often no more than approximations or estimates. Regardless of the accounting method used, human judgment is a vital factor in the final results. Consistency of policy relating to inventory valuations within the individual company will still continue to be an important criterion of acceptability to the Treasury Department. Uniformity in detail between different companies in their treatment of inventories is not so necessary. The last-in-first-out amendment is no more of a straitjacket than the income-tax law itself. From its very nature, the last-in-first-out method is appropriate only in those businesses where continuity of related operations and the resultant continuity of inventory position are present. It has no application whatever in a series of short time unrelated, speculative ventures. This is emphasized in the provisions of the law whereby replacements of reductions in inventory below the starting point must be carried on the books at the new cost.

Abstract Education for a career in accountancy, then, as in all education, has the objective of preparing individuals to act in certain ways with understanding. It, too, is a union of teaching and learning, combined in differing proportions. A complete education will take more time than an incomplete education. An in- complete education can be accomplished with a minimum of formal teaching; a more complete preparation usually leans heavily upon the vicarious processes of learning. Accounting is used in the social interest as an instrument of regulation of business; uniform systems of accounts and reports have been required in some cases; audits may have been prescribed; professional accountants are examined and licensed; accounting provisions are increasing in corporation laws. Such an appreciation approach would seem to be a very appropriate one in many educational situations. Yet this approach is seldom found among the college offerings. Intensely specialized programs of study undoubtedly have a place. Classes after hours and correspondence courses often serve a very useful purpose in this connection. But intensive specialization works under very definite limitations. If used to supplement prior general education, some disadvantage may appear because prior and present subject matter are not well interwoven.

Abstract At a Chicago, Illinois, meeting in 1926 one session was a roundtable on examinations in elementary accounting and the interest displayed in that program suggested that further discussion of the same topic would be welcomed. This session is therefore devoted to the subject of examinations but will consider examinations at the different levels, elementary accounting, advanced accounting, and the postgraduate C.P.A. examinations. At the Chicago meeting considerable interest was disclosed in the subject of objective examinations in elementary accounting, and it seemed at that time that the department at Minnesota had gone farther than most departments in the use of such examinations. President of the association has therefore asked the author to have a member of the staff present some materials, which they have developed in that form. A good many instructors still feel skeptical about the adaptability of this form to the held of accounting and it is hoped that this discussion will give some idea of the various types of questions which may be used and how the usual criticisms against this form may be eliminated. Objective questions are more difficult to prepare than problems and it takes a number of years of experimentation and improvement to obtain satisfactory questions and to remove flaws which necessarily appear in first attempts in this direction.

Abstract Increasing activities of the various Federal agencies in examining, investigating, and regulating commerce and industry have no doubt taken away from the accounting profession some of the work formerly performed by public accountants. The profession as a whole has not suffered from the loss of such engagements, but on the contrary, has immeasurably benefited in other ways from these increasing activities by the Federal government. Private industry and individuals are seeking more and more the expert assistance of skilled accountants in interpreting and following the laws, rules, and regulations of the various governmental agencies affecting accounting principles and practices. Many practicing accountants are now called upon to testify before governmental agencies on behalf of their clients, and consider such work as professional routine. It is likely that Federal agencies have taken the responsibility of examining and investigating many cases of an accounting nature, which were formerly under the control, and supervision of accountants engaged in private practice, or was not examined at all.

Abstract Reviews the book "General Accounting," by H.A. Finney.