The chief importance among the factors giving rise to business statistics is modern large-scale business enterprise. The development of this form of enterprise has brought a separation of management from actual operations. This has been true not only for top general management but also for top departmental or technical management. As a result of the change, management has been compelled to develop a technique of relatively remote control. The essential feature of the new technique of remote control by which top management bridges the gap between itself and actual operations is the more effective use of records. As a result, accounts have become of much greater importance for management. But the new management has come to require also records of data outside the double-entry system. Management now finds itself with two different kinds of records on its hands: accounting records and statistical records. The managerial experimentation which has developed business statistics is like the operation of a military force in the field.

The article presents information on accounting for depreciation. Depreciation may be defined as an accounting cost which is arrived at by the use of methods which do not "attempt to measure the exhaustion which actually takes place within a given period," we thereby divorce the depreciation problem from the everyday world of business experience in which managerial decisions are made. Unquestionably, managements in their selection of depreciation methods have sometimes had purposes in mind other than an accurate accounting for depreciation. They have sometimes been motivated by an undue regard for financial conservatism. Even aside from the selection of methods, their depreciation policies have sometimes brought accounting results which have been positive misrepresentations of the facts. However, the accounting profession cannot afford to countenance such practices and still less can accountants afford to make them a basis for their own analysis of the problem of depreciation. The fact that managements have used methods of depreciation with different ends in view does not mean that the different methods rest upon basically different assumptions.

Reviews the book "Introduction to Accounting for Students of Economics," by C.A. Ashley.

The difficulty presented by a circuit of intercom any ownership relations is familiar to those who are conversant with the preparation of consolidated statements. If Co. A owns 4/5 of the stock of Co. B and B owns 3/4 of the stock of C while C in turn owns 1/10 of A's stock, we have a situation which leads us into an infinite series when we apply the usual process of preparing a consolidated balance sheet. The equity of each company is dependent upon the equities of all of the other companies within the circuit. The standard method for the solution of problems of this type is the use of simultaneous equations. Each company has title to its own assets but of course those assets are subject to the claims of creditors so that the equity of stockholders in them is their net value. The profits earned after consolidation could be carried round and round the circuit until the remaining portion did not exceed one cent. Usually the fractional part of the stock of the major holding company in the group, which is owned by a subsidiary company, is small. As a result the amount carried forward to succeeding rounds of the circuit is rapidly reduced. But in spite of this fact the application of such a method would be very cumbersome indeed. However, it suggests a simple process, which obviates the necessity of using simultaneous equations.

In the last generation there has been a decided change in the position and responsibilities of the accounting profession. This change is not an isolated phenomenon. It ties in with both the current changing relations between business and government and the long-run development of the accounting profession. It is part of a disturbed and unstable economic and social situation which has led accountants and many other groups to seek guidance in the formulation of basic principles. In order to appraise the present position in any respect, the most effective background for the task is a survey of past developments or an account of how the present position was arrived at. Such a survey for accounting would reach far beyond the limits of one brief discussion. Nevertheless a background is needed and if a complete one is not possible, an incomplete treatment is better than none at all. The process of evolution in accounts as an accounting for the costs of business operations is still going on at an unabated pace. Current changes are to be viewed in the light of a development which reaches back through the whole history of modern accounting. The process of evolution in accounts as an accounting for the costs of business operations is still going on at an unabated pace. Current changes are to be viewed in the light of a development which reaches back through the whole history of modern accounting.

A policy type of management has come to be characteristic of modern business enterprise. This means that business practices in meeting particular situations and particular problems are being shaped to a constantly increasing degree by general rules formulated in advance. Methods of production and sale as well as relations with employees, consumers and investors are regularly subject to policy control. This trend in management has been necessitated by the increasing size of business units and the increasing complexity of its operations. Activities of a large business organization move forward with so much momentum that they quickly bring on disaster unless a clear track ahead is provided for them. It is a responsibility of the policy type of management to foresee possible disasters and to keep the road ahead clear. The size of current business units, their complexity, their closely knit organization and the necessity for a forward outlook in their administration are all due in a large measure to machine processes used in the technological operations over which business enterprise exercises control.

There is a close parallelism between the development of law and the development of accounting. Both arise out of a world of concrete relations and they must maintain contact with that world or lose their strength. If there is any general criticism to be made of the tentative Statement of Principles prepared by the Executive Committee of the American Accounting Association, it is that the statement shows inadequate recognition of the fundamental principle that all accounting principles and practices must preserve a vital functional relationship to a world of changing economic facts. Roughly speaking there are three major functions served by accounts. In the order of their development, these functions are the record function, the control function and the protection-of-equities function. The control function goes back at least as far as the beginning of the practice of closing the books regularly but its major development has been of very recent date especially in connection with modern industrial accounting.

The accountant who looks upon accounting as a relatively finished system of technique and a relatively complete body of theory has his face turned to the past rather than to the future. He is as far out of touch with the actual situation in which we live as the economic theorist who makes the economic man the cornerstone of a supposedly universal system. As business administration becomes more professional and scientific, the relationship which has in the past prevailed between management and accounts places a two-fold burden upon accounting. It is expected to continue its function as a tool of control and at the same time it is called upon to furnish management both the facts and the principles upon which scientific administration must rest. In meeting the latter requirement it becomes essentially a scientific methodology. As such its rôle is to afford a basis for the coördination of business administration with the current scheme of economic and social organization. This discussion has dealt with potentialities of accounting development rather than with so-called actualities. It has been argued that accounts must be readjusted to a new viewpoint of management and that in order to effect such a readjustment fundamental changes of technique and rules of procedure are necessary. It has been suggested that the result desired may be obtained by a decentralization of accounting problems and a thorough functionalization of the accounting system. With our present knowledge of social phenomena, one would be rash indeed to insist that particular developments like those here suggested, must take place. There are some things, however, upon which we can depend with definite assurance. Accounting, like all other institutionalized practices, must adjust itself to a changing environment if it is to survive.

The problem of depreciation has had various interpretations in the course of its evolution in accounting practice and accounting literature. It has been treated as a problem of financing the replacement of fixed assets; as a method of presenting properly such assets in the balance sheet, and as a problem of the allocation of costs in operating statements. The usual practice among current writers appears to be to recognize these different interpretations and to admit their inconsistency. Depreciation is discussed from the viewpoint of the balance sheet and from the viewpoint of the operating statement, frequently with the expressed or tacit assumption that those viewpoints are irreconcilable. It is proposed here to show that a proper treatment of the problem from one point of views entirely consistent with its proper treatment from other points of view that the problem is one problem consistent within itself regardless of relative emphasis placed upon its different aspects. Depreciation originally made its appearance in accounting in the form of an appropriation from net income or surplus as a provision against the time when fixed assets must be replaced. In this form it related to financial administration and not at all to the immediate control of operations. So used, depreciation was, therefore, a financial and not an operating account.

In this article the author contends that an accurate allowance for depreciation must take into account probable repair costs over the whole life of the assets the value of the asset is affected by both the amount and distribution of expected repair costs, and that, therefore, any accurate calculation of depreciation requires prediction of repair costs as well as prediction of the life of the asset and its scrap value. In order to make an investment in an asset profitable, depreciation must afford returns large enough to cover the replacement of the investment, a competitive net return upon the investment in the asset and repair costs necessary to maintain the efficiency of the asset. If it is known in advance that in some years an asset will not afford its usual income, allowance will be made for that fact in the determination of its present value. Since the value of the asset always is dependent upon expected incomes from it, the calculation of depreciation can likewise be based upon future expectations.