owning it originally, another who has purchased it from a third party who in turn has borrowed it from a broker to make delivery.

Both owners of the stock will expect to receive dividends, one of the dividends being paid out of the pocket of the person selling short. Both will take exemption on that income as dividend. It is difficult to see that anyone is to blame. The man who sells short is compelled only to pay the dividend on the stock he has sold short; the man who has just purchased the stock does not know that it is sold short and is entitled to dividend with the usual dividend exemption, and the person who owns, on margin or otherwise, the stock that has been borrowed for the purpose of the short sale also has a right to dividend with the regular exemption. There is nothing in the law to compel a man who pays dividend on stock sold short to pay to the government the normal tax on that amount; so that on the whole the government loses the amount of the normal tax on all dividends paid out of the pocket of the short seller to the purchaser of such stock. The exemption is intended to represent tax which has been paid for the stockholder by the corporation; the short seller has paid no such tax.

If the government loses, someone gains. In this case it is the short seller. He puts himself in the place of the corporation, paying dividends with tax exemption without having actually paid the tax. The corporation must pay the tax on all its earnings, so that for each dollar paid out by the corporation to stockholders the cost to the corporation is $1.08 or more. A short seller can well afford to pay $1.00 in dividends if the corporation whose stock he sells short is put to an expense of $1.08. Theoretically, he should be able, after dividend is paid, to buy the stock of the corporation for $1.08 less than before, making the $.08 profit. The corresponding anomaly when stock is sold by bucket shops will be readily seen.

By W. F. BLOOR

FUNCTION OF ACCOUNTING SYSTEMS

The underlying reason for the growing demand and value of accountancy is the realization of the business man that an accurate analysis of his business is as essential to progress as a carefully planned sales or production organization and policy. The decisions and judgments of the successful man of business today are not, as in the past, based upon guess work or a "hunch," but upon a thorough knowledge of the past, present and future.

The method of presentation is, therefore, of much importance. Some executives, for example, require a detailed record of operations, while others need only a statement of the outstanding facts. A busy factory or sales manager is not vitally concerned with an increased cost of machine supplies in one department nor with excessive traveling expenses of a salesman. These are facts which concern only executives further down the line.

There are four general methods of presenting accounting data: (1) By written report.

(2) By tables of figures.

(3) By graphics.

(4) By combinations of (1), (2) and (3).

Presenting business and accounting facts by a written report and statistical tables is often necessary, particularly when much detail and lengthy analyses are desired. However, when trends or tendencies or a continuous story of vital data only is desired, the graphic chart has no substitute.

SOME USES OF GRAPHICS

Pictures of facts or graphics are becoming of use in practically all activities in which man is interested. The securing of facts. in the quickest time with the least effort is the main issue. It is easier to see than to think, and, therefore, it is easier to grasp a picture than a statement of facts.

The use of the graph is no new thing, but until comparatively recent date its application had been almost entirely by mathematicians, biologists and engineers in the study of the laws of science. In these fields, the data have always been so numerous as to compel graphical treatment-and in these fields great discoveries have been made by the graphical method of investigation.

During the world war, it is known that many of the great campaigns and strategic attacks were planned out almost entirely on charts. On this side, the war department and various government boards often made use of the voluminous records and statistics of those days only when graphically constructed.

Within the last few years a decided increase has become noticeable in the use of graphics by financial and trade magazines as well as by advertisers to present facts to the public. Most leading colleges of business now have courses in statistics and graphics. Lecturers, teachers, economists and accountants have all discovered the value of "picture facts."

USE OF GRAPHICS IN BUSINESS

The foregoing is mentioned merely to point out the growing use and widespread application of graphics. To get back to the business executive-it is reasonable to assume that the graph can be applied to his problems as well as to others; and, as a matter of fact, a great deal better in most cases.

When one tries to draw conclusions from a column of figures, he generally finds that, more or less unconsciously, perhaps, he draws a mental picture of their meaning. This is the reason the busy and progressive executive appreciates a picture record of operations. The vital facts and comparisons stand out plainly. If a picture can be presented that will give him at a glance the exact state of his whole business, with detail subordinated in the order of its importance, so that the fundamental and important things stand boldly in the foreground where they can not be overlooked, and the less important facts, though present or readily available in the form of tables of figures, receive attention only when necessary, the executive is in a position to grasp and direct his whole business with an intelligence and sureness of control which promises a successful business with full returns to all concerned.

To a considerable extent this idea has been and at present is being carried out in many business institutions. Among the first to use graphic methods were insurance companies, railroads and similar businesses, the data of whose operations are voluminous and usable only when statistically and graphically handled.

A few years ago, some of the more progressive corporations began showing the fluctuations in the volumes of their sales from month to month by means of graphs. The efforts of the various

salesmen were compared by curves that ran a sort of race. Such methods were found to enable a continuous and at the same time complete story to be understood quickly by management and sales force alike.

Today, graphs are used to present all kinds of business factssales, advertising, production, costs of labor, material and overhead, efficiency of machinery and employees-in fact, all information that is of value to the management. The use and the value of these charts are not limited merely to an historical picture of what has been done. Charts, used for historical purposes only, would not justify the effort expended upon them. The most valuable use to which they can be put is to forecast the course of operation, to show trends and tendencies and to enable the management to formulate policies and map out what it proposes to do.

It has been the recent privilege of the writer to see the working and results obtained by a system of graphical charts in one of the large corporations of the country. The complete story of operations is presented to the management monthly by a system of charts planned and constructed by a central graphic department.

The management realizes that profitable production means control, and in a big business control means records, many records, the volume of which, unless they are analyzed and charted, overwhelms those who use them. Masses of figures that are available each month cannot possibly be remembered until the next month. As a result, conditions each time have to be considered largely by themselves or as contrasted with some other single month. It is not in this way that the laws underlying fluctuations in costs, in production, in sales prices or in profits can be deduced. Yet predictions as to future conditions are an impossibility unless these laws are known.

Where once voluminous reports of statistical data and figures were studied by the management, now a system of graphic charts has taken their place. If some detail or additional information, not included in the chart, is desired by the factory manager it can be obtained immediately from the accounting department. The result is that only the vital facts are presented and the factory manager is given no opportunity to let himself go astray in working out details.

During a period of business depression, when economy has become the watchword in industry, complete control of the situation has been and is in the hands of those who are responsible,

largely because they have the facts constantly before them. If the waste-cost curve, for example, of a certain production department turns sharply upward one month, the factory manager realizes it to be a danger signal; and if it continues the next month, there is no escaping the conclusion that something must be done to turn the curve downward. A conference with the superintendent, showing him the chart and the disastrous result should. the present condition continue, usually brings the desired results.

It appears evident from the foregoing that graphic methods of presenting facts are becoming essential in all business and other activities of man. No matter how small the business unit, some consideration should be given to a method of presenting the facts graphically. In a small organization the system, of course, would be relatively simple as compared with a complex and complete system for a hundred-million-dollar corporation.

LOCATION OF GRAPHIC FUNCTION

The place for the graphic function is within the accounting organization. It should, in fact, be made a part of the accounting system, for surely no system of accounts is complete that stops before the ultimate goal, namely, the presentation of results, is reached.

On the following page is exhibited an organization chart of an accounting department of a manufacturing concern, which, with slight adjustments, should apply to any business. Conditions are, of course, different in every business, but the underlying principles are identical in all. Under the department manager are three main subdivisions, namely, general accounting, cost accounting and statistics and graphics.

WORK AND FUNCTIONS

The function of the statistical and graphic subdivision is that of collecting, compiling and analyzing statistics of production, costs, sales, profits, etc., furnished by the general and cost accounting sub-divisions, and presenting the data to the management in the most efficient manner.

External data may be coördinated with the internal statistics through research study, which is the function of the research section. Comparisons of commodity prices with wages, production of raw materials with market prices, sales with bank clearings, etc., are valuable information for executives. In fact, external data should be included as part of every graphic system. Business