Knowledge that Transforms

Reviews the book "Public Accounting Practice and Accounting Education," by Donald P. Perry.

One advantage of taking a CPA Review course from an experienced instructor is that it provides the inexperienced candidate with an over-view of the types of questions and subjects most apt to be touched upon. The candidate needs to acquire perspective. Many students taking the examination immediately upon finishing their university training, do not know whether three hours spent in a review of process costs will be as valuable as three hours' review of the break even point or perhaps the subject of joint ventures. A thorough application of the principles of commercial law is useful in recognizing accounting consequences of legal documents such as contracts for the sale of merchandise, bills of lading, underwriting contracts, stock option agreements, pension plans, and employee profit-sharing plans. Careful attention must be directed to outlining the special rights, privileges, and priorities of various classes of common and preferred stock. Restrictions on dividends resulting from long-term bond indentures must be properly explained. These are just a few of the items encountered.

The article presents a report on flow of funds. The need for a statement to report changes and movements not clearly reflected. The article presents a report on flow of funds. The need for a statement to report changes and movements not clearly reflected in the balance sheet and the income statement has long been felt. The positive uses of the funds statement and the reasons for the recent upsurge in its popularity are interesting. For one thing, the recent inflationary movement in this country, associated with a high level of business activity and high tax rates, has posed financing problems on a scale so large as to constitute really new problems to American business. A statement of source and application of funds becomes useful in explaining why a net profit of a million dollars is not identical with an increase in funds of the same amount, available to increase dividends or raise wages. Certain other characteristic problems arise in the preparation of a funds statement. It has less obviously but nevertheless just as certainly dictated the form and content of the balance sheet. To judge by published statements, it has also influenced the form and content of the funds statement.

It is relatively short time since university and college courses in accounting began to include theoretical and controversial aspects of the subject in their curricula. Many such institutions still provide only the briefest of introductions to matters of this nature, and very few questions on marginal issues are to be found in the professional examination papers. Where the attempt has been made to extend courses of study beyond the traditional technical boundaries the need must have been felt for a text which deals adequately with the assumptions and concepts of accounting. In the second place, accounting on a cash basis receives only the briefest notice. Yet entities which keep accounts in this way are by no means insignificant. On the one hand are administrative governmental departments and agencies, the transactions of many of these exceed the transactions of most business corporations. On the other hand are large numbers of small business firms, possibly the majority in number of all business units.

Reviews the book "Sixth Annual Tax Accounting Conference--1955."

The author discusses the impact of new revenue code on accounting. He describes the effects of taxation and tax laws on accounting theory and practice. He discusses the probable effects of changes in taxing rules on accounting practice. He clarifies the possible effects of tax rules on non-tax accounting by way of illustration. He further mentions two new methods which may be used for tax purposes, which are, the double-rate declining balance method and the sum of the years-digits method. He mentions the effects of changes that occur when a taxpayer changes from accrual method of reporting installment sales to the installment method and changes in the selection of fiscal years for tax purposes. He discusses the change that could affect the willingness of taxpayers to change from an accounting method for accounting purposes. He briefly mentions the minor changes which effected in bringing tax accounting closer to financial accounting and code changes which affect accounting indirectly. He mentions the responsibilities of the accounting profession in face of the new internal revenue code.

To many accountants depreciation as we know it today represents an idea which is a generally accepted accounting principle. Business has not always had such respect for depreciation accounting. This article has as its goal a highlight review of some of the interesting changes, which have occurred in the development of this accounting concept. The idea of depreciation was not clearly established by the latter part of the nineteenth century. In 1876, the United States Supreme Court stated, in referring to the determination of the profit of a merchant, that it was unusual to take into account depreciation on a building in which a merchant maintained his business. In 1878, the United States Supreme Court criticized the practice of establishing depreciation reserves through periodic charges to operating expense, and held that only the actual expenses of renewals could be charged to operating expense. The idea as expressed by the Supreme Court was apparently the common thinking of business leaders, for the Third National Convention of Railroad Commissioners in 1879 adopted a report on uniform accounts which included the following instruction no expenditure is chargeable for an actual increase though unless it is made on old work in such a way as to clearly increase the value of the property over and above the cost of renewing the original structures. Corollary to this idea was the thought that if property were properly maintained there would be no depreciation.