Knowledge that Transforms

Reviews the book "Practical Financial Statement Analysis," by Roy A. Foulke.

Modern internal auditing has been developed to provide the protection management needs, in the same sense that external auditing (public accounting) has developed to provide the protection investors need. Internal auditing is not new. Internal auditing staffs were maintained by a considerable number of concerns prior to 1900. Internal auditing functions have been carried on in one way or another down through the ages. Modern management is finding that modern internal auditing is not just a means of checking up on the petty cash funds and payroll bank accounts to see that the system of internal control of cash and receivables and merchandise is functioning. It is finding that the techniques of auditing, verification by test check, physical inspection, record analysis, and common sense appraisal in the light of the facts developed afford a means of doing something more than keeping the cashier honest. It is finding that sales managers, branch managers, and construction engineers, being human, all give a better performance and give more factual report.

This article says that income in general, is a variable concept concerning which there has been considerable debate without a great deal of final agreement. Within the framework of historical accrual accounting, however, if allowance is made for variations in procedure and for different methods of computation, the concept of income appears to be accepted as indicative of something fairly specific. There is ground for believing, nevertheless, that this is not an entirely satisfactory concept of the income situation. In economics and in the vernacular the term "income" usually refers to goods and services. The emphasis is upon assets, often more specifically upon cash, rather than upon the resulting technical accounting increase of a specific equity. Expense and revenue items, in their deeper meaning, have reference to cash effects. From the standpoint of historical accounting, gross income, in this sense, is the amount of cash received and to be received as a result of the period's sales.

Reviews the book " Tangible Fixed Assets," by William D. Cranstoun.

Reviews the book "Cost Accounting Bibliography," A.L. Prickett.

Reviews the book "Financial Accounting," by George O. May.

In this article Navy expenditure classification by objects is considered. The Bureau of the budget prescribes an "object" classification by which budget estimates are to be submitted. Therefore, spending agencies provide an expenditure analysis by such objects to support their budget estimates and to meet the Bureau of the Budget's requirement for such a classification. This classification of expenditures by objects is accomplished in the Navy Department by coding disbursement and expenditure documents; procurement requisitions, contracts, etc., leading to public vouchers, the Analysis of Labor Roll Summary by Expenditure Classifications, a monthly report for labor similar to the Analysis of Materials Summary by Expenditure Classifications; and a Schedule of Collection Provision for this classification may be noted on the sample form of the Analysis of Materials Summary by Expenditure Classifications at the bottom of the form in a separate schedule. The object classification required by the Bureau of the Budget of all Federal departments permits the preparation of a statement of the total expenditures of the Federal government by broad classifications of expenditures. It may also he used to compare in a broad manner the operation of various departments in several respects, for example, the proportion of total expenditures charged for personal services.

Reviews the book " Trends in Auditing and Reporting," by Samuel J. Broad.

This article focuses on the reducing accounting costs. Much has been said and written about the miracle of production accomplished by American industry during the war, and undoubtedly most people think of that accomplishment in terms of such items as tanks, planes, ships, etc., which were produced in unbelievable quantities. Accountants may not wish to use the word "miracle" as applying to their contribution to the war effort. The automobile industry was probably the first large industry to recognize the possibilities of breaking down the construction of a complicated piece of apparatus into simple, routine, repetitive operations and to place each operation in its proper position in the factory in relation to all the prior and the subsequent operations. To accomplish this, it was obviously necessary to visualize the source and manner of providing original raw materials and to have an exact knowledge of the finished product. In most large companies, two of the routine operations in the payroll department are, to calculate the gross earnings of the employee and to pick up gross earnings and make the necessary payroll deductions while developing both the net cash payment to the employee and sufficient deduction detail to account properly or the respective deductions.

Few economic theorists have much knowledge of cost accounting, while many cost accountants know very little of economic theory. As a result, literature on costs from the economic side only too frequently reflects an ignorance on the part of its writers of the practical difficulties of costing, or else their neglect to take the practical side into account at all. On the other hand, the writing done by many cost accountants is mechanical arid, although by no means useless, has less value than ought to be the case. The economist differentiates between fixed and variable costs and he uses the terms such as marginal cost and average cost, along with marginal revenue and average revenue. According to the economist, the enterpriser does not require a proportionate amount of the cost of his long-lasting equipment to be covered by revenue in any short period. It is recognized that, at times when output is low, revenue may afford little if any contribution toward the cost of such equipment. A shortfall of this kind is expected to be compensated by an excess arising at another period, when revenue is larger and a heavier contribution can be made toward the cost of the equipment.