Knowledge that Transforms

Abstract All business firms have felt the impact of rising prices in one way or another. In many cases their financial statements have yielded peculiar results. On the balance sheet, the historical cost basis of valuation of plant and equipment, and the "lower of cost or market" method for the valuation of inventories have tended to undervalue assets grossly. Credit ratings, current ratios, and insurance coverage often cannot be determined adequately from these figures. On the income statement, reported earnings have often soared to unprecedented heights, due mainly to the matching of out of date inventory and depredation figures against current, higher selling prices. Accompanying this exaggeration of profits are the problems of higher replacement costs of inventories and plant, of sharing these illusory profits among the government taxing agencies, laborers, and stockholders, of the determination of future selling prices, etc. The accounting records become much less useful as aids in solving these perplexing problems, in as much as they have not been adapted to the changing price level.

Reviews the book "Executive Action," by Edmund P. Learned, David N. Ulrich and Donald R. Booz.

Reviews the book "Managerial Economics," by Joel Dean.

Abstract There has always been a great deal of dissention between accountants and management concerning charges to depreciation expense and the corresponding credits to the reserves for depreciation. A restriction on assets would seem to be for the purpose of financing replacement either directly or by earnings re-invested. Restriction is a little more descriptive and the term is not subject to so many connotations. The fact that restrictions for renewal apply to all assets implies that only one account would need to be maintained in the general ledger for this restriction, providing adequate subsidiary records were maintained. If a general price decline ensues, the balance or balances of such excess restriction accounts could be transferred to the surplus account at a time when surplus is likely to be embarrassingly low. The assets would no longer need to be restricted from ownership equity. For a going concern the problem of providing for fixed asset replacement would seem to be more important than establishing a valuation reserve for old assets.

Reviews the book "Developing Men for Controllership," by T.F. Bradshaw.

Reviews the book "Statistica Economica," by Giovanni Lasorsa.

Reviews the book "C.P.A. Law Review," by Joseph L.Frascona.

Reviews the book "Accounting Trends and Techniques in Published Corporate Annual Reports," 4th ed.

Reviews the book "Advanced Course in Federal Taxes, 1950."

Abstract This article discusses how statistical analysis can serve accountants. Statistical analysis is a highly valuable auxiliary to many professions at the present time. But only in very recent years has its great value as an auxiliary rather than as a profession of itself been particularly realized. It is timely, therefore, to consider whether accounting could generate more power by meshing gears with statistics. This question is made even more opportune by the problems which the rise in the general level of prices has thrust upon accountants. These problem, already urgent, are becoming critical with the resumption of the upsurge in prices and the strong prospect of its continuance. Probably the best place for accountants to start in statistical analysis would be with index numbers. They are constructed by ordinary arithmetical processes and are simple to apply. But what spotlights the importance of index numbers to accountants now is their usefulness for dealing with problems presented by the decline in the value of the dollar. It seems not too much to say that if a substantial proportion of accountants were conversant with index number construction and application, these problems would be more concrete and vivid to the accounting profession than they have been and there would be much more rapid progress in handling them.