Knowledge that Transforms

This is an era of experimentation and exploration in accounting. It parallels and is a portion of the same process which has given rise to innovations and developments in the social science of economics. Accounting like its sister science economics has belatedly begun to recognize that although the solution to each problem in the economic scene is limited and bounded by action taken relative to the solution of large problems, nevertheless, great potentialities for increase in economic well-being are possible through objective, piece-meal attacks on problems concerning the economy's units of activity, i.e., problems of individual business entities. To accomplish the many objectives of modern accounting-provision of data for financial statements, control, and special decisions of management-the art and science of accounts must be made more flexible, must be broadened, and must be deepened to accept within its ken increasing responsibilities for analysis and interpretation. The inordinate emphasis that has been placed upon single-purpose accounts and principles relating to such accounts must be replaced by a more scientific attempt to utilize accounts constructed so as to be of varied usefulness. Financial accounting as a device leading to the preparation of a questionable income statement and a more questionable balance sheet had its heyday in the first half of the present century. Accounting as a tool which embraces techniques of the statistician, the objective experimentalism of the engineer, and the concepts of the economist has great potentialities for serving the forward-looking purposes of management and investors beset on every hand by change in the social and economic scene. To be of greatest assistance in the solution of problems of private and public enterprise, there is a need for a broadened concept of the role of the accountant and accounts.

From a tax standpoint, the concept of business income as it exists as a part of the "generally accepted" principles of accounting has some notable weaknesses. The defects are associated primarily with the entity concept, the going concern postulate, and the period convention. To a lesser extent, there are faults connected with the manner in which the realization concept, the "rule of conservatism," and the "maintenance of dollar capital principle" are applied. Most of these deficiencies might be absent or minimal if taxable profit was conceived as an individual matter and considered to arise only after there had been a recovery of the money (or equivalent) that an individual had invested in a profit seeking venture of any sort. The manner of calculating profit, unrecovered investment, or loss would depend, in part, upon the type or nature of the investment. The concept embraces the idea that the tax on profits arising after a short recovery period should be larger than the levy on profits realized after an extended period of investment recovery. There is reason to suggest that a number of desirable consequences might attend the use of such a method of measuring profit for tax purposes. There might be greater equity in taxation in several respects, less risk to investors, and resulting stimulation to the national economy. The danger of inequity in certain other cases, and the possibility that the use of such a method might tend to impede the movement of capital funds are the major negative potentials. In spite of these defects, it is contended that the nation would benefit if means could be found to effect a transition to an investment-recovery-first basis of measuring profit for tax purposes. At the least, the concept might have value as a standard or viewpoint to use in the analysis of the prevailing tax requirements, and in the evaluation of proposed reforms in the tax system.

Reviews the book "Government and Business," by Vernon A. Mund.

The correlation of accounting instruction with instruction in other business fields is to focus attention upon the interrelationships among business courses and to emphasize the need for more comprehensive programs to develop professional business responsibility. The purpose of integration is to reverse the usual emphasis and come out with management skills rather than only technical skills. Business practitioners are much concerned about the newly conceived role, which they hope to play in an expanding commercial and industrial society. The principal task of the college of business administration is to develop competent students, well equipped to pursue lifetime careers in the management of economic and business affairs. Before considering the responsibilities of the accounting curriculum for carrying out that task, two qualifications should be made clear. First, students who expect to become professional accountants must be thoroughly grounded in the conventions and techniques of the profession in order to meet the immediate requirements of the first job. Second, mass education has brought to colleges of business some students who have neither the potentials nor the interests to assume positions of administrative responsibility.

Reviews two books on federal taxes. "Montgomery's Federal Taxes--Corporations and Partnerships, 1949-50," by Robert H. Montgomery, Conrad B. Taylor and Mark E. Richardson and "Montgomery's Federal Taxes--Estates, Trusts and Gifts, 1949-50," by Robert H. Montgomery, James O. Wynn and G. Harold Blattmachr.

This article focuses on the control over the distribution of installments in a liquidating partnership. In the opinion of the author, it would be entirely logical to insist that since the reasons for the capital investments really terminate with the decision to liquidate the firm, balances being maintained for the purpose of covering the possible losses of the contributors, the interest allowance should be eliminated during the liquidating period. In fact, the earlier distributions to those in the stronger position do in a way take the place of an interest allowance. Similarly, it would appear logical to insist that salaries be allowed to partners during the liquidating period only for services rendered, and that such salaries should be deducted from proceeds and disbursed rather than credited to capital. On the other hand, if a partner's capital balance is such that it will not likely cover his share of liquidation losses, and if services which can be performed by this partner are needed in the liquidation activities, it may be appropriate to ask that he devote as much time as possible, using the salary allowed for such contribution to bolster his capital position.

Reviews the book "Management of Industrial Enterprises," by Richard N. Owens.

Reviews the book "Accountant's Rapid Tax Finder," by Paul M.Johnson.

Reviews the book "Advanced Accounting," by Arthur W. Holmes and Robert A. Meier.

Reviews the books "Monetary Policy for a Competitive Society," by Lloyd W.Mints; "Federal Reserve Policy-Making: A Study in Government Economic Policy Formation," by G.L.Bach.