Knowledge that Transforms

This article focuses on an investigative report on a specialized course in accountant's writing which was offered last year at Northwestern University. The questionnaire which is the core of this report was sent to 62 representative accounting firms located in all parts of the United States. Although the scope of the survey may seem to be limited by the small number of firms involved, a quick glance at their names would show that many of them are national firms with branch offices throughout the country. It is believed, therefore, that the replies are representative and that findings are based upon the thinking of the profession. Emerging from the replies to the questionnaire and from our experience in teaching the trial course, a distinct pattern for a specialized course in writing for accounting majors has been found out. Such a course must be designed to teach the student to do the following things: first, analyze accounting material and formulate ideas based on dear thinking and accurate objectives. Second, set up these thought patterns in simple, precise, concise, reader-adapted prose.

Reviews the book "C.P.A. Problems," by Arthur D.Maxwell.

There is a present need to devise and establish by authoritative recommendations of the profession a set of accounting concepts and standards, which will be generally accepted and adhered to in the determination of corporate net incomes, so that the findings of the accountant as expressed in the annual reports of American corporations with regard to the amount of the income accrued or loss sustained during the fiscal period, will be accepted and relied on by the public and all interested parties as definitive and conclusive and expressing substantially the facts and the result of the events which took place during the period. In the opinion of many accountants such a codification of standards for income calculations would be an important step forward toward allaying the suspicion and lack of faith in the income determinations presented in corporate financial reports. The great usefulness and social utility of such a development in the accounting profession can hardly be questioned, because if it can be achieved it will help to lay the factual foundation for impartial social control if national economy. It is true that in the determination of corporate income for any period of time opinions and estimates play an important part in greater or less degree, depending on the kind of business and the nature of assets.

Reviews the book "Basic Cost Accounting," by Samuel Waldo Specthrie.

In this article the examination of the financial statements of an automobile insurance company is discussed. The Company is carrying protection against the risks of auto liability, auto fire and theft, auto comprehensive, auto property damage, auto collision and miscellaneous auto. It is generally known that casualty insurance companies, especially those involved in auto risks, operating under State supervision, differ widely from those of commercial and industrial companies. State supervision includes the determination of the financial soundness of the insurance companies as well as competent management, which means that fair policy contracts can be sold and that all just claims arising out of them will be paid. The difference between insurance and commercial accounting is due not only to the type of statements used, but to how there records are kept. The records are usually handled on a cash basis and the financial statements prepared for the stockholders and policyholders based on accruals.

This article discusses aspects of a governmental audit. Probably the principal purpose of a governmental audit is to prepare a report containing an opinion of the independent auditor on the financial statements of the governmental unit as presented by its officials. This is a culmination of the other two purposes which are to be mentioned below in that the opinion expressed in the report of the auditor is based upon the results of the investigation by the auditor of the reliability and reasonableness of the records and acts which they record. The first purpose is to appraise the judgments and decisions made by responsible officials concerning accounting matters and to prepare information to assist others in appraising all of their judgments. This appraisal is made from the point of view of determining whether or not the judgments of responsible officials as reflected in the records are justifiable, reasonable, adequately supported, representation of the best alternative if other possibilities were present, etc.

A great deal of controversy has taken place recently covering the field of depreciation and the acceptable method to be applied in the allocation of the expenditure of fixed assets to revenue. Every accountant knows that the straight-line method is not used in order to give the true depreciation but is used only for the reason that it is a convenient way of estimating the depreciation charge. The accounting principles governing the charging of expenditure on fixed assets to revenue are the same as those governing the charging of current expenditure to revenue and there can be no question of setting aside amounts out of profits to meet the expense. The fundamental proposition in regard to depreciation arises from the necessity of presenting income statements for periods of shorter duration than the life of the assets. It has been stated that the same principle underlying the charging of depreciation against revenue exists as applies to any other expense and therefore the general concept underlying the presentation of a true statement of operations, namely, the attempt to make an accurate matching of cost and revenue forms the fundamental basis under which a justification exists for the charging of depreciation against the revenue of a given period.

This article presents problems, which were prepared by the Board of Examiners of the American Institute of Accountants, and were presented as the second half of the May 1951 C.P.A. Examination in accounting practice. The candidates were required to solve problems 1 and 2, and either problem 3 or problem 4. The time allowed was four and a half hours. The weights assigned were, problem 1, 10 points; problem 2, 25 points; problem 3 or problem 4, 15 points. One of problem is being given as, "the Town of Big Springs had not been operating a public library prior to October 1, 1950. On October 1, 1950, James Jones died, having made a valid will which provided for the gift of his residence and various securities to the town for the establishment and operation of a free public library. The gift was accepted by the town. The library funds and operation were placed under the control of trustees. The terms of the gift provided that not in excess of 3 ,000 dollar of the principal of the fund could be used for the purchase of equipment, building rearrangement, and purchase of such "standard" library reference books as, in the opinion of the trustees, were needed for starting the library. Except for this 5,000 dollar, the principal of the fund is to be invested and the income therefore used to operate the library in accordance with appropriations made by the trustees."

A balance sheet, whatever else it may be or purport to be, sets out, as at a certain point of time, the sources from which funds have been derived in the past and the ways in which such funds have been applied or employed. Before discussing the meaning of "funds" in this context it is worth recalling that this view of the balance sheet reflects the point of view that an accountable entity is regarded as distinct from its owners, managers, employees, creditors and any other persons with whom "it" may have dealings, and that "it" is regarded as being capable of possessing things and having rights against persons and other accounting entities. The balance sheet, then, is a statement setting out, on the one hand, the amounts of funds which a hypothetical, or better, perhaps, a conceptual enterprise has derived from creditors of various kinds and proprietors, and, on the other, the various ways in which those "funds" have been embodied with varying degrees of permanence by or on behalf of the enterprise. This approach appears to clear up a difficulty which many people, including, especially, students, experience, namely, that of conceiving a decrease of cash as a source of funds and an increase as an application, for, if the conceptual nature of funds is accepted, there remains no ground for confusion between "funds" and "cash." To eliminate all possibility of confusion, perhaps a new term altogether is needed to express the concept.

Reviews two books on taxation. "New York University Eighth Annual Institute on Federal Taxation" and "Major Tax Problems of 1950."