COMMENTS. With all due respect to the New York State Board of Accountancy for setting a high professional standard for C. P. A. examinations, one cannot help speaking a few words in favor of the accountant student. A perusal of Bulletin 15, June, 1903 (C. P. A. Syllabus), of the University of the State of New York will reveal the fact that the syllabus calls for Manufacturing Accounts and not Cost Accounts. It reads: "Accounts to indicate causes of loss by a firm whose sales and cost calculations indicated a profit. Manufacturing and Loss and Gain Accounts, and Balance-Sheet," etc. Reading this paragraph in the syllabus the candidate for the C. P. A. degree certainly does not expect to be surprised with such a problem as Question 1-2, especially when on page 240 of the above mentioned syllabus it is stated that the outline of the latter is also "to serve as a limitation to those who prepare the questions." It is true that Cost Accounting is becoming a prominent feature of the accounting profession, yet this is no reason why the accountant student should not find at the C. P. A. examinations what he expects to find according to the C. P. A. syllabus or else have the latter revised. 66 With regard to Question 1 (October, 1907), one can hardly tell under what section of the subject of Practical Accounting this would come. Surely not under that of accounts involving bonds and other securities," as the syllabus does not disclose in the least the stress put by the State Board in this given problem, the solution to which, to be accurate, and this the Board certainly requires, would take three or four hours' work by the experienced practitioner. How then shall the candidate solve it in much less time? With regard to the solutions it will be noticed that although the final results in both cases (Solutions I and II) are the same, each solution showing a net profit of $54,193.98, yet in the presentation of the solutions as well as in the technique there is no doubt that Solution I is clearer. The answer in the latter, relating to the percentage to be calculated and added to each $1 of material and labor to give total cost, appeals to us more than the percentages arrived at in Solution II. At least in Solution I, proof is furnished for the given answer. The Closing Statement as given in Solution II, is superfluous. In the first place the question does not call for it, and, secondly, the assumption that the capital at the beginning consisted of the inventories only, as given in Paragraph I of the question, is quite strained. The attention of the reader is also called to the fact that in Solution I, Factory Expense Account has $24,444.15 and Management Expense Account $37,496.26, while according to percentages shown the respective accounts should have $24,449.30 and $37,491.60. The latter figures are more correct, but the problem requires us to use the former, hence the difference. With regard to the solution of the second problem (October, 1907), each item there is so explicit that one would not feel justified in using unnecessarily for comments the valuable space of THE JOUrnal. The Journal of Accountancy Published Monthly under the auspices of the Vol. 5 FEBRUARY, 1908 No. 4 Standardization of State and Municipal Accounting. BY MORGAN L. COOLEY, C. P. A. While it may appear to those who have not made a special study of governmental accounting generally, that comparatively few states and cities exhibit aggressive interest in the subject of improved methods of accounting, to the student of economy it is evident that the general trend toward betterment is fully as pronounced as is the movement toward better and more efficient methods of accounting for manufacturing and commercial corporations. Municipal, state and national governments alike show a distinct desire for better methods of accounting for and reporting upon fiscal transactions, and the current condition of this agitation presents some interesting features, not the least of which are the diversity of ideas obtaining in accounting matters, and the variation in opinions as to the best manner of procedure for the attainment of satisfactory results. While it is true that important action has been taken in the direction of securing uniform methods of accounting for municipalities, practically the only crystallization of effort in that respect has been the preparation of uniform schedules of accounts, and their adoption by a few cities; standardization of state accounting having as yet received little or no consideration. It is possible today to take the annual reports of a number of the larger cities of the country, which have adopted uniform schedules of accounts similar to those used by the U. S. Bureau of the Census, and to make some limited comparative deductions which may be of use to a student of statistics, or to municipal administrative officers. As a matter of fact, however, the general advantages to be derived from the use of uniform schedules, unaccompanied by further information, are, in a very great degree, to be yet established. The schedules as a general proposition, subject to some modification in particular cases, are suitable and adequate for municipal work, but a great deal of their intended value is lost in consequence of the lack of uniform care and attention in methods of supervision and verification of expenditure, and allocation of charges and credits; and as a result of the lack of treatment of the variation in the underlying conditions present in any two cities between which comparisons may be attempted. In order that the schedules may serve the purposes intended, some of the first requirements are: the adherence, by all municipalities, to a fixed and uniform plan of allocating charges to classified expense accounts, and charges to special accounts which are in the nature of capital, such as property purchases or new construction; and to a thorough and uniform system of supervision. Necessary features of their intelligent use are the reduction of all expenses to comparative costs per capita and per service-unit. The latter may easily be arrived at in the case of tax collections, street and sewer work, and in fact in practically all municipal expenses, and should be shown in fiscal reports. To make the consideration of comparisons between cities of any value, it is also necessary to investigate and understand the conditions obtaining in each. For example, the cost per capita and per service-unit of maintaining streets, sewers, water systems, police departments, etc., varies between compact cities of small radii and cities of equal population covering larger territory; and conversely, between cities of equal area but of unequal population. Many other considerations arise which affect comparison, and it is consequently dangerous for the advocate of uniform schedules, however good his intentions, to "hitch his chariot " to them alone. Be they never so uniform, as an unsupported and unexplained distribution, they cannot be considered a universal panacea for municipal accounting ills, nor a safe and adequate basis of comparison of results obtained by different cities. 66 They can, however, under proper circumstances become of great value to administrative officials, and they should constitute for this purpose merely an integral part of a thorough and farreaching system of accounting, uniform for all departments, as far as possible, with subsidiary books controlled and coördinated by means of a suitable system of general accounts in a central office. Isolated cases of large and important items of municipal graft" are disclosed and investigated from time to time, but usually their discovery is more from accident than from the efficiency of the accounting methods. It is apparently a fair supposition that the cost to municipalities from loss and waste arising from negligence or ignorance in methods of supervision and accounting, providing opportunities both for wastes from which no one benefits, and for countless petty losses by theft and otherwise, would, if ascertained and computed, form a staggering total. Railroads and manufacturing corporations have succeeded in reducing expenses and leakages in a determinably marked degree by installing and carefully operating modern accounting systems and ideas, and municipalities should profit by their example. The states, in general, are emerging but slowly from primitive and inadequate methods. Some have seen the necessity for improvement and are giving increasing attention to accounting matters; are providing for the careful supervision of public offices; and endeavoring to standardize methods of accounting for taxing districts and state institutions. The various aspects and lines of development in different states present a singular condition. It is an example of "many men, many opinions." At one point we find great interest in the supervision of accounting for taxing districts; at another attention is centered. upon public institutions; supervision is variously delegated to public examiners, to auditors, and to comptrollers. The task of analyzing the methods, in their kaleidoscopic variety; selecting good points from each, and, with the aid of modern ideas, molding the whole into a comprehensive, thorough-going system of accounting and supervision, is not a simple matter, but it would. seem that the time is rapidly approaching when the question of uniform and standardized methods of accounting will be agitated with equal fervor for states and for municipalities. There is a strong relation between the movement for uniform municipal accounting and the desire of various states for uniform returns from counties, cities and villages, and the two should develop in harmony. The problem of accounting for public institutions is also common to states and municipalities. As mentioned previously, a cost or service-unit must be arrived at before intelligent comparisons can be made, and this applies to any attempt to compare the yearly results of the same institution, or the results of various institutions with each other. This idea must be inherent in any scheme for the successful administration of public institutions whereby the best results may be accomplished with the least expenditure. In the case of a hospital or sanitarium, the per capita cost of expense items may be found per patient day; in a prison or reformatory, per inmate day; in a school, per pupil day, etc. Care must be used, however, in allocating charges and credits, and ascertaining costs, or the labor involved in attempting comparisons will be lost, seriously affecting the consideration of estimates for a new budget, in the light of results from past appropriations. Estimates which are based only upon the amounts of preceding appropriations cannot be expected to be necessarily economical, and may easily be either too small or too large. If the former, departments are either limited in their expenditure to a degree which may hamper their proper operation and development, or else are compelled to ask for a deficiency appropriation; if the latter, a condition arises tending to extravagance and possible misuse of funds. Both cases indicate the necessity for such an accounting system as will provide the proper data, not only for the preparation of economical estimates by institution and other department heads, but for their intelligent criticism by legislative officers. The classification of disbursements should be uniform, and carefully supervised, both as regards expenditure for operation and maintenance, and for construction, additions, etc. Books of instruction should be issued, indicating in detail the items chargeable to each account. Close attention should be given to the recording of accounts receivable as soon as contracted, and to the accrual of all revenue upon the books, so far as is possible, where it will command attention until collected. An advantage to be derived from the use of the revenue and expense " basis, rather 66 |