Knowledge that Transforms

The article presents some of the problems that were presented by the Board of Examiners of the American Institute of Accountants and were presented as the first half of the November 1950 Certified Public Accountant Examination in accounting practice. The candidates were required to solve any five problems. One of the questions that were asked in the examination was about a man who used to live his family. The person received some incomes on the cash basis. Students were asked to calculate the amount that person is entitled as a deduction for contributions in connection with the stock donated. In another question, Arthur Jacobs, a merchant, kept very limited records. Purchases of merchandise were paid for by check, but most other items of cost were paid out of cash receipts. Accounts receivable were recorded only by keeping a copy of the charge ticket and this copy was given to the customer when he paid his account. An inventory of merchandise taken on December 31, 1950 showed $16,710 of merchandise on a cost basis. Based on the information, the students were required to prepare a statement of profit and loss for 1950, supported by all computations necessary to determine the sales and purchases for the year.

Reviews the book "Functional Accounting," 2nd ed., by C.A. Moyer and R.K. Mautz.

The traditional answer to the question of how much test checking is required is enough to satisfy the auditor. The profession, through its national organization, has attempted to make this answer more meaningful by adopting a tentative statement of auditing standards which places emphasis upon the auditor's training, his preliminary preparation for each engagement, his independence and so on. The auditor, even though conscientious, may become satisfied with his test sooner if there are other engagements pressing for his attention, if the client is worried about the fee and if he happens to be feeling ill on a particular day. Quite aside from the possibility of any adoption of standards by the profession in an organized capacity, each practitioner needs to have a tool, which he can depend upon. Such a tool would enable the auditor to apply the same standard of quality consistently or to make explicit and definite adjustments in it for differing circumstances. Such a tool is now available to the accounting profession. It is the sampling theory developed by statisticians and now widely used in the sciences. It consists basically of the calculation of probabilities.

In the preparation of accounting statements, the unit of summary and reporting may be an individual proprietor, a partnership, a business corporation, an association or a governmental unit. It may be the whole organization, a department or branch, or even a job or process. The accounting unit can be defined then, "as a section in a two-way stream of exchanges of goods for cash. This section contains related elements, which are insulated from outside factors by barriers, or by check points at which the outside relationships are measured. In practice, lost time reports, shrinkage and spoilage reports, summaries of expenses over and under applied, and related adjustments, are needed to make the job records cover accurately all factors in the cost of a job unit. A corporation is the most commonly cited accounting unit. It fulfills the requirements of a unit because of laws which specify records to be kept, and provisions requiring the separation of the interests of its officials as individuals from their responsibilities and returns as officers. The definition of an accounting unit also fits a nation, where the flow of trade and the balance of payments between it and other countries are measured and recorded. Thus the definition of an accounting unit fits any size or type of unit. It provides a basis for testing whether a part of an organization can properly be considered as independent for accounting and managerial purposes. It bases the definition on functional relationships rather than on legal or managerial traditions.

Reviews the book "Fundamentals of Accounting," 3rd ed., by Harry H.Wade.

Reviews the book "Principles of Accounting--Intermediate," 4th ed., by H.A. Finney and Herbert E. Miller.

This article focuses on the problem of communicating accounting information. The transmission of the information accumulated and condensed in the ledger accounts has always been a problem. Decision must be made as to the basic types of information to be included in the reports, the extent of the detail or condensation of the information, the classification of the information, the form and arrangement of the information in reports, and the terminology to be used. Since the general public is not well grounded in accounting matters, the accountant is faced with the task of making the reports intelligible. This is difficult as the accountant uses so many words in a technical sense which are already in general usage with various shades of meaning. The layman, when he sees a report in which familiar terms are used; will quite naturally believe that he understands the report. A variation of the above approach to making statements more intelligible is to use pictures, charts, and diagrams to supplement or as a substitute for the technical terms. Pictures of the various assets may be placed on the balance sheet; bars representing the total income may be segmentized to show the various expenses and the net profit; the profit retained in the business, paid to stockholders, and paid to the government in the form of income taxes may be illustrated by a pie chart; and trends in income, expenses and profits may be shown by charts.

Reviews the book "Corporate Treasurers' and Controllers' Handbook," by Lillian Doris.

This article focuses on the research projects in accounting. Last published list of accounting theses appeared in the September, 1941, issue of the journal "The Accounting Review," nearly ten years ago. Comments of a number of members during recent months suggest that there is a considerable demand for information about accounting research currently in progress. The questionnaires called for the classification of titles under eighteen subject headings. The present list is offered in partial fulfillment of that demand. Accounting for Corporate Capital Transactions, Rufus Wixon, University of Michigan, Ann Arbor, Michigan. The Accounting Determination of Income, Joseph A. Silveso, University of Missouri, Missouri. Effect of Inflation on Accounting Literature, Robert H. Shutt, University of Texas, Arlington, Texas. The Effect of the Decline in the Economic Value of the Monetary Unit upon Accounting for Fixed Assets, Raymond Lee Gibbs, Southern Methodist University, Dallas, Texas. Accounting for Organization Expense, George W. Underwood, University of Tulsa, Tulsa, Oklahoma. Accounting for the Acquisition and Amortization of Goodwill, Harry Richard Hedlund, State University of Iowa, Ames, Iowa.

This article focuses on the financial statements valuation. Where two alternative procedures each have compensating advantages and disadvantages, it is possible to design a procedure that will combine them so as to amalgamate their advantages and eliminate their undesirable features. Fortunately, such a process is possible in the conflict between historical costs and deferred costs concepts. Since each theory has its obvious merits, there is much to be said for preparing two separate sets of statements, with one set being predicated on historical costs and the other being based on the deferred cost concept. Or, single statements could be prepared with two distinct sets of values. Such a procedure would have the salutary effect of fuller reporting of accounting data, and a greater usefulness of such information. It would, of course, mean an increase in the cost of accounting services, but accounting has become such an important adjunct of commerce that additional costs for vital information should easily be justified. The need for a dual value statement is not an entirely new one, since the traditional "Statement of Affairs" really expresses this same basic thought. However, the development of other dual value statements has undoubtedly been inhibited because they represent a sharp departure from strict precedent, rather than because these statements are either inherently unsound or fundamentally undesirable. It is believed that a new approach is certainly needed, and that there is compelling evidence to justify it.