Knowledge that Transforms

Abstract The article discusses about various issues related to fixed and variable costs. In considering the problem of the adoption of uniform accounting principles, it would seem that not enough attention is given to the matter of interpretative reporting. Once the bookkeeping principles have been established, the matter of preparing statements is of the utmost importance. An unwritten law in accounting is that the statements should report exactly what is in the ledger accounts. Under commonly observed accounting principles the resulting statements are useful not so much for what is contained in the body of the statement as for what is contained in the footnotes. It is suggested that it might be well to repeal the above-mentioned law, and concentrate upon the preparation of reports that are suited to the individual needs of the persons to whom they are directed. The division of operating expenses into fixed and variable categories is suggested here only as one step toward making the income statement more useful, and it involves very little change from the statement form which is now being used in three out of five cases according to the quotation from Financial Statements.

Reviews the book "Accounting Research Bulletins."

Abstract While other cases in the journal "The Accounting Review," have considered the matter of depletion policy, an entirely different viewpoint is expressed in a prospectus recently issued by the Inspiration Consolidated Copper Company. This company's case is about net income without deduction for depletion and control through minority stock ownership. The latter company was incorporated in Maine, on December 18, 1911, to own, operate, and develop mines, water rights, waterpower, mineral and other lands, and to own and operate mills, power plants, reduction works, and railways. The company started commercial operations in June, 1915, and continued such operations until May, 1932,when the depression necessitated a shutdown of slightly more than three years, although sales and deliveries of copper on hand were continued. On September 18, 1935, plant operations were resumed. The company produces electrolytic copper, cement copper, and copper concentrates. The ultimate smelting and refining of much of this copper is done in plants of the International Smelting and Refining Company, a subsidiary of the Anaconda Copper Mining Company.

Reviews the book "Federal Income Tax Accounting," by Stewart Y. McMuller.

Abstract Before a department or agency of the Federal Government can obtain funds it must convince the United States Bureau of the Budget, the President, and the U.S. Congress, that the amounts requested are necessary. Planning is based on the financial period beginning July 1 of a particular calendar year and ending June 30 of the succeeding calendar year. This period is always referred to as the "fiscal" year and is given the number of the calendar year in which it ends. The author in this article briefly outlines several objectives in administrative appropriation accountkeeping. The truth about the accounting system of the Government is that it is not nearly so bad as a great many people believe it to be, nor quite so good as people long in the service consider it to be. The science of accounting is not static in the Government. In many departments noteworthy improvements have been made during the past decade. With recognition of certain deficiencies, accompanied by a desire to improve conditions, still greater gains can be realized in the next decade.

Abstract The 1939 Income-Tax Act extends to all taxpayers the privilege of evaluating the final inventory on a first-in, last-out basis. The corollary permits the cost of goods sold to be determined in accordance with the assumption that goods purchased last are sold first. Official recognition is thus given to an additional method of evaluating inventory. The new method does not solve any of the technical difficulties encountered in pricing the goods on hand at the close of the period, since the procedure to be followed is merely the reverse of that called for by the last-in, last-out method. It therefore contributes nothing in the direction of simplicity. Effective support, if such exists, rests in some supposedly desired resultant in either the balance sheet or the income statement. It is probable that a predetermined end motivates the advocates of the first-in, last-out method: the desire to influence managerial decisions through a restatement of profits. That such a purpose is proper motivation for accounting procedure is questionable. Certainly it deviates from the goal of historical accounting; namely, the recording and presentation of facts.

Reviews the book "Accounting--Principles and Practice," by Henry Rand Hatfield, Thomas Henry Sanders, and Norman Lee Burton.

Reviews the book "Accountancy As a Career," by Lawrence W. Scudder.

Abstract This article is concerned less with what actually constitutes common accounting practice than with the soundness of the accounting basis upon which such practice rests. Undoubtedly there are those who would prefer the plural-bases in the belief that no one basis can ever explain the whole of accounting practice. Such reasoning, however, appears to place the cart before the horse, as it is tantamount to making current practice though admittedly contradictory and heterogeneous, the acid test of any accounting basis which may be advanced. Furthermore, there is grave danger that a multi basis approach is but a twist of logic by which individual judgments, based on circumstances wholly foreign to pure accountancy, are substituted for accounting control. Actually, it appears literally impossible that multi basis accountancy can ever establish effective control over business reporting in opposition to contradictory non-accounting judgments based on apparently urgent financial expediency, legal prudence, or business policy. This is all the more apparent when it is realized that many of the individual bases within the multi basis of accounting practice were dictated by circumstances from without rather than by controls from within accountancy itself.

Abstract The United States Securities and Exchange Commission in a recent release discusses the application of accounting principles to three issues raised by the financial statements, for 1934 to 1937 inclusive, of the Alleghany Corp. These include the handling of bond discount and expense, the treatment of gains and losses on the sale of investments, and the proper recording of a contract between the Alleghany Corp. and the Chesapeake and Ohio Railway Co. covering the sale of securities by the Alleghany Corp. The Securities and Exchange Commission points out that accounting authority sanctions the amortization of bond discount and expense as an additional element of interest cost on borrowed capital, and the setting up of the unamortized portion on the asset side as a deferred charge. However, in a footnote the Commission warns investors that such an item does not constitute a tangible or realizable value. The Commission illustrated the effect of the improper accounting principles originally used in the three instances under consideration by comparing the uncorrected surplus balances for December 31, 1934, with the amended balances.