Knowledge that Transforms

Reviews the book "Present Day Banking."

Reviews the book "Theory and Mechanics of Accounting," Leo A. Schmidt.

Reviews the book "Principles of Accounting," by A.L. Prickett and R.M. Mikesell.

Abstract One of the important uses of accounting statistics is to furnish a basis for judgment formation. It is this use which controls the form of accounting statements, the classification of accounts, and the valuations used. Generally speaking, the person with the best information can render the best decision. From this point of view the best accounting would be that which collected and displayed the data in such way that the user would reach the correct decision more frequently than he would if it were collected and displayed in some other manner. If cost prices would cause the user to make the correct decision, cost prices would be the best accounting for that situation. If market prices would cause a better decision, market prices would be the best accounting. Having the above thoughts in mind, It is advocated that the replacement cost of goods sold should be substituted for the cost of goods sold when preparing the profit-and-loss statement of a mercantile or manufacturing concern. By preparing the profit-and-loss statement on a replacement cost basis this expansion policy will be curbed. The merchant will realize that he must recapture replacement cost plus expenses on the upswing and will increase sales prices more rapidly.

Reviews the book "Business Cycles and Forecasting," by Elmer C. Bratt.

Abstract Perhaps no topic has been the subject of such wide differences of opinion as the method used, under given conditions, to make allowance for the expense which results from the disappearance of value of physical assets, commonly termed depreciation. These methods vary from those which result in a minimum charge to those which result in a maximum charge for any given period. Absolute uniformity in this respect is neither attainable nor desirable. Allowance must always be made for natural differences arising from geographical location, climate, and the character of the asset in question. Neither can the differences of opinion of individuals be entirely erased. Depreciation will long continue to be a controversial subject. By recognised opinion, however, much that is erroneous or dangerous may be eliminated from the list of proposed procedures. Methods which may be condemned are those which, if persisted in, result in financial embarrassment or bankruptcy as well as in gross inequality in treatment of the various parties interested in the progress of the enterprise.

Abstract It is a generally accepted belief that cost accounting originated in the nineteenth century and received its major impulse from the development of the factory system and the extensive use of machinery in industrial production. This common opinion is only partly true. A systematic technique of cost accounting was developed during the nineteenth century and has been greatly extended in recent decades, but some elements of cost accounting are much older. Existing medieval business records show that industrial accounts were used as early as the beginning of the fourteenth century. This fact has been brought to light by recent research in old Italian account books, such as those of the Del Bene Company, Florentine importers and finishers of foreign woolen cloths in the first part of the fourteenth century. For the sixteenth century, examples of industrial bookkeeping are also found in the records of German mining enterprises. All these examples demonstrate beyond a doubt that rudimentary forms of cost finding were commonly adopted in those industries such as mining and textiles, which came under capitalistic control centuries before the Industrial Revolution.

Abstract Since stock dividends do not distribute corporate assets or affect the safety of creditors, legal restrictions on their declaration may be deemed less necessary than in the case of cash dividends. Yet a closer study discloses a real need for imposing limitations on stock dividends. Restrictions on stock dividends must of course be expected to be different from those applied against cash dividends, because of the different problems raised by the two types. Stock dividends involve the issuance of new shares, calling for the increase of capital stock and reduction of the surplus or profits from which they are declared. Stock dividends also result in a form of recapitalization. Where there is more than one class of stock outstanding, the realignment of net worth accounts may affect the participation rights of a particular class of stockholders in assets, in earnings, and in management. It is the purpose of the present paper to snmmarize the more important limitations on stock dividends under the existing American law as found in the statutes and decisions and to raise questions, where the occasion appears, concerning the efficacy of these systems of control from the standpoint of the public interest.

Reviews the book "America's Experience As a Creditor Nation," by John T. Madden.

Abstract Included in the "Tentative Statement of Accounting Principles" offered by the American Accounting Association in the Accounting Review of June, 1936, was the recommendation that unaccumulated bond discount be reported in the corporate balance sheet as a contra to the face or maturity amount of the outstanding obligation rather than as an asset. The purpose of advancing this specific suggestion in a statement of general principles was to call attention to a practice which is neither in accord with the clear reasoning which is supposed to characterize accounting nor supported by the "considerations of expediency" so cherished by those who feel it necessary to offer some excuse for deviations from logical procedure. The members of the Executive Committee of the Association felt, in other words, that here was a particular point at which accepted presentation is definitely out of line with sound principle and where correction would be entirely feasible-aside from the problem of inducing the typical accountant to change his ways. The recommendation, it should be understood, does not involve any new doctrine or approach. It represents merely the application to financial statements of the interpretation of bond discount long a commonplace in financial circles.