Knowledge that Transforms

Abstract The article presents a case history of a terminated, government fixed-price subcontract, it is hoped that someone may profit by another's experience. No suggestion should be read into these facts that this article is offered in a carping or deprecating way. On the contrary, one can only wonder at the stupendous task faced by the administrators of the Contract Settlement Act of 1944 and the perspicacity with which they have handled its very broad provisions. The businessmen of this country can rest easily, at least in respect to the thought that the U.S. Congress and those who have been given authority under the Act have "planned" to "facilitate maximum war production during the war, and to expedite reconversion from war production to civilian production as war conditions permit." The problem of reconversion was not handled quite so expeditiously during and after World War 1. The contract under consideration has only recently been settled, proper names will be omitted. Hereafter, the subcontractor will be referred to as Company X; the prime con-tractor as Company Y, and the contracting governmental agency as Agency Z.

Abstract The article presents information on the role of the public accountant in contract termination. The settlement of terminated contracts involves many problems other than accounting, such as the physical handling and disposal of inventories and equipment. However, there can be no lack of emphasis on the accounting phases of such settlements. The Contract Settlement Act of 1944 has as its purpose the standardization and so far as possible, the simplification of procedures in arriving at such settlements. Although the Act provides for settlement by agreement or negotiation, a careful reading will indicate that accounting is generally considered essential to such settlements. The basis of a settlement by agreement is the contractor's proposal for settlement, which must be prepared and submitted to the proper governmental agency. It should be apparent that such proposal must be based upon a reasonable accounting foundation in order to negotiate a settlement an any basis other than a purely arbitrary one. Provisions of the Contract Settlement Act of 1944, imposing severe penalties in case of fraud or misrepresentation in the settlement proposal, make reliable accounting data equally important for the contractor's own protection.

Abstract The U.S. Office of Price Administration (OPA) has had an assignment generally unique in American economic activity. It has been given the responsibility for price control, rent control, and rationing, three activities that were not customary for the American people. In some form OPA affects practically every person in the nation. Its programs have required a large amount of accounting work, and just as these programs of price control, rent control, and rationing were new to the average citizen, the great use to which accounting had to be put was new to both industry and government. The purpose of this article is to set forth the manner in which accounting is used within OPA and to show its place in the over-all program of the agency. In establishing wartime controls in fields where the American people had never before had such controls, it was necessary to set up an organization that would be flexible enough to permit efficient operation in the face of a rapidly developing emergency. To obtain such an organization, a staff that would combine a wide range of training and experience had to be recruited. Business specialists from industry, specialists in industrial research and economics, lawyers, accountants, and other specialists were called on to cooperate in this new undertaking.

Abstract Economics is concerned with the economy of a major unit of society, one which extends beyond the limits of any individual firm. Business accounting, on the other hand, deals with the economy of subordinate parts of a larger unit of society. The unit used by the accountant is typically the productive business firm. Economy is meaningless unless de fined in relation to the point of view of somebody or some group taken as a collective unit. Recognition of three distinct "levels" or types of context for any discussion about economic problems are that the problem of the individual or natural person as a consumer. The business firm as a producer. It is with the firm, often in the form of a corporate enterprise operating as a trading unit within a money economy, that accounting is concerned. The last level is that of national, or, better, total economy. The economy of the business firm can be expressed adequately in accounting terms. The economy of the individual also may be expressed in similar terms if exception is made for that segment of an individual's economy which is not expressed in money, that is, the individual may economize in the exercise of alternative modes of use of his non-monetary resources, as when he performs a service for himself.

Abstract Reviews the book "The Tariff Reform Movement in Great Britain, 1881-1895," by Benjamin H. Brown.

Abstract It is generally agreed nowadays- among both teachers of accounting and professional accountants-that "accounting is based on cost." The significance of this proposition, however, has not been adequately clarified. It certainly does not mean that accounts and financial statements continuously show the total acquisition costs of the various factors listed in such statements; absorption of costs through depreciation, depletion and amortization is a major feature of the normal process of accounting. It does not mean that shrinkage in value of inventory items must be ignored; recognized inventory methods provide for appropriate write-down in the case of damaged or obsolete elements and for absorption of costs considered to be nonrecoverable and hence not assignable to future revenues-as a result of changes in prices. It does not preclude partial or complete write-off of assets such as investments when there is convincing evidence of permanent impairment, or total disappearance, of value (although not all accountants would take the position that partial write-off prior to disposition is required). It does not overlook the fact that conventional cost procedures result in cost compilations that are nothing better than reasonable estimates of allocated costs incurred to date, especially in the case of work in process and finished goods.

Abstract The article presents a discussion of cost accounting, the pricing system, and the management factor. It preaches to the conclusion that the cost accounting has an important position in these activities. At the same time, it is not all-important. Judgment and discretion in the use of cost data are necessary to deal successfully with the pricing system. The pricing system itself is in some respects a fetish, especially under the conditions that industry is about to encounter. The ability of management to adapt itself to the conditions it meets and to use its ingenuity and resourcefulness in operating under those conditions leads to the most prosperous and profitable results. In the exercise of that ability of management, cost accounting furnishes data that if used wisely and judiciously, greatly expand the opportunities of the manager. Cost accounting at best can be only a tool of management. The skill with which the tool is used is the deciding factor in dealing with pricing situations. It is the man in management that is the truly important factor.

Abstract The article presents information on tax simplification. During the past few months, numerous committees representing various business and professional organizations have been working at the task of suggesting ways of "simplifying" the Federal income tax law. Their purpose is to make recommendations to Congress which, if adopted, will presumably result in a plainly written, easily understandable statute, supplemented (it is hoped) by equally clear regulations. The announced objectives of the tax planners are threefold: (1) simplification; (2) elimination of "inequities" and (3) encouragement of "risk capital." After studying the recommendations, Congress may proceed in one of two ways to bring about the desired reforms: it may repeal the existing Internal Revenue Code and enact a brand-new law, or it may retain the Code in its present form and make such changes as appear to be in order. Despite the apparent advantages of making a clean sweep and starting over, it would probably be impractical to discard the accumulated body of law and precedent; hence "simplification" will likely be accomplished by revising the present Code. To help bring about the maximum "simplification," it is suggested that certain sections be entirely removed from the Code.

Abstract According to the author accounting profession would be strengthened and the public interest would be better served, if all persons who present themselves as practitioners of public accountancy would be required by law, first to demonstrate their professional abilities and then to act in accordance with recognized standards of practice. Accountancy is not an exact science. There are no set rules or formulae, which can be used as a guide by the untrained. It follows, then, that the public accepts the practitioner pf public accountancy in good faith as one properly qualified to render a specialized service, important to the welfare of business and, consequently to the general public. The present generation should accept this, even though it means that they will encounter the many difficulties concomitant with such a drastic change as the regulation of practice through restrictive legislation. They should work and strive with all the ability they possess and the strength of character, which has been built into their profession to bequeath to the certified public accountants of the future the gracious heritage of a unified profession.

Abstract Reviews the book "The Entity Theory of Consolidated Statements," by Maurice Moomtz.