Knowledge that Transforms

Reviews the book "Business and Government," by Charles C. Rohlfing, Edw. W. Carter, Bradford W. West and John G. Hervey.

Reviews the book "Corporate Finance and Regulation," by Chelcie C. Bosland.

The article focuses on the improvement of present curricula and methods of accounting teaching. The author argues that the there is a need for improvement in the methods of examinations. The greatest opportunity for improvement lies in the direction of a strong trend toward greater objectivity in those examinations. Accounting, like mathematics, lends itself naturally and easily to the objective techniques. The argument for the objective technique is usually based upon the ease and sureness with which it serves this grading function. Many early efforts at objective examining run into student resistance. Such resistance is often at least partially justified because most early attempts in the new medium are likely to include a few bad items, and students, especially the best ones, are quick to spot such ambiguous, unanswerable items. The cure for this is item-analysis of the results of every test. The ability to analyze and organize is basically the ability to recognize and appraise significant relationships among insolated factors each of which is by itself a simple statement of fact.

The "cost of goods available for sale" is generally understood to consist of (1) the costs incurred in acquiring goods in the current period plus (2) any acquisition costs deferred from preceding periods. The allocation of such acquisition cost to cost-of-goods-sold and ending inventory may be accomplished by several methods, including the "retail" method and the "gross profit" method. The similarities and dissimilarities of these two methods seem to have been neglected or overlooked in accounting textbooks. It may be observed that both of these methods are similar in that they reduce the sales price related to a group of units by an amount of estimated gross margin, with the resulting figure in each case being used as the basis for making an allocation of the cost of goods available. But the two methods differ in that "gross profit" method starts by reducing selling price of units sold, while the retail method begins by reducing the selling price of unsold units. The article presents illustrations to aid in explaining these two methods of pricing inventory activity.

The discussion of the accumulation and analysis of cost data for production and investment decisions raises a question about the basic procedure for accumulating the original cost data. Cost and production data are used for a variety of purposes: valuing inventories, determining profits or losses on individual orders or groups of products or operations, measuring efficiency of production, establishing prices, selecting the best of alternative methods of producing, measuring obsolescence and many other purposes. No single cost figure is equally satisfactory for all managerial decisions-some decisions require partial costs, others, such as the determination of obsolescence, require imputed cost such as interest. The central fact is that some of the decisions of management require a segregation of costs according to the extent to which they vary in total with the rate of output. A corollary of this is that none of the other decisions of management requires that cost and production data be accumulated on a basis inconsistent with the distinction between fixed and variable costs.

Reviews the book "Audit Working Papers," by Maurice E. Peloubet.

The article focuses on the financial reports for creditors. Creditors are those individual or business organization which deliver goods , wares, or services, or lend their money, to a debtor in exchange for a promise to pay at some time in future. The creditor's confidence in receiving payment in the future is based upon the history, reputation, and character of the debtor, supported by adequate accounting reports. Accounting reports are the creditor's principal tool. They consist of reports of independent accountants, reports of management to stockholders, and special financial and statistical analyses. The factor which distinguishes the creditor from the stockholder or other groups is primarily the use to which he puts the reports, and the approach he takes to becoming or continuing to be a creditor. Creditors can be classified into three broad groups. First are the trade creditors who sell merchandise, materials or services to the debtor. Second are the bank creditor who lends money to the debtor on an institutional basis for more or less short periods. The third class of creditors is security holders, who lend money to the debtor for a long period of time.

It is believed that one of the major postwar industrial developments will be the consideration of the subject of overhead as it applies to government contracts. Many types of contracts are being written today to meet the varying conditions of procurement of materials. The principal types which are being negotiated are (1) fixed price agreements, (2) contracts whereby the price is re-determined at some stage of completion or delivery, (3) contracts which provide for reimbursement of all allowable costs, (4) cost plus-a-fixed-fee contracts which are similar to cost reimbursement contracts except that they also provide for a fixed fee, and (5) time and material contracts. The legal and accounting requirements of each type of contract differ. Of the three elements of cost to be reimbursed, the most difficult of application to contracts is usually overhead. There is no rigid formula or set procedure for preparing reports covering overhead studies. The auditor's findings should always be written in clear and concise language and with an orderly presentation of significant information. The scope of the report should include the following: origin of the study, a summary of findings, the scope of the examination, details of the auditor's findings, recommendations and conclusions, and such pertinent exhibits and schedules as may be necessary in each instance.

The article presents an educational experiment in cost accounting. Introducing the college student to cost accounting is a difficult task, especially as most undergraduate schools of business allot only one semester to this technical phase of accounting. Even those students who successfully complete one semester of this technical subject derive only a shallow and mathematically abstract concept of the field. In an endeavor to blend theory and practice, the author has been conducting an experiment which is now going through its second year in operation. a two-semester course has been instituted commencing with the Fall semester, involving two 2-hour class periods per week. The high spot in the first semester centers upon the case Study the student makes of an individual firm. To prevent duplication and the possibility of annoyance of business executives, the instructor must approve the student's selection before any actual contact is made. Although the exact form of the written report depends upon the student's literary style and ingenuity.

Reviews the book "Problem Manual in Corporation Finance," by Paul M. Van Arsdell.