Abstract An area of accounting that is subject to varying interpretations and inconsistencies in reasoning is the statement of source and application of funds used in reporting financial changes. Moreover, little effort has been made to iron out these shortcomings. The fact that this statement has always been relegated to a minor position in accounting use is apparently one reason why those who have worked with it have often been satisfied with their own ideas and have been unaware of or indifferent to the situation that exists. And, in reverse, it may well be that the inadequacy of theory in this area has prevented a wider use of the statement. In recent years there have been repeated predictions that the funds statement will play a more important role in the future and such a trend seems to be taking place in current financial reporting. If the statement is destined to greater usage, now is the time to crystallize further the thinking about it. To illustrate an important difference of concept, the reader is asked the question whether or not funds are involved in a transaction in which a plant is acquired by the issuance of securities without cash or other current assets being transferred.

Abstract Consistency in accounting usually is considered the policy of adhering to procedures which are identical with procedures used in the past. The definition gives little suggestion of the problems that might arise in an effort to follow the policy. Most accountants would agree that the doctrine should be pursued with a limitation. It should applied only is so far as there is no desirable need for a change of accounting procedure, for making such a change seems to violate the doctrine. It is this area that appears to deserve attention, since the limitation may at times be overlooked. Where consistency is wrongly applied, it becomes a fault rather than a virtue of accounting. The major weakness of unlimited application of the doctrine is glaring when admitted errors are repeated. To omit an asset once from the balance sheet through error does not mean that future balance sheets should exclude the asset just because it would be consistent to do so. This idea seems well accepted and appears to call for a certain amount of inconsistency, thus providing an example of the limitation of the policy.