ACCOUNTING 



21 



ACCOUNTING 



distinct from bookkeeping, which records facts 

 by rules laid down by accounting and for 

 accounting to interpret. The relation of an 

 accountant to a bookkeeper is somewhat the 

 same as that of a mechanical engineer to a 

 mechanic; the first designs machines, the sec- 

 ond constructs and uses them, and the first 

 n studies to see if improvements or correc- 

 tions are necessary. A good bookkeeper will 

 be to some extent an accountant, just as a 

 good mechanic knows something of engineering 

 ice. See BOOKKEEPING. 



Accounting, like commercial law, is a subject 

 of which every business man should have some 

 knowledge. Good bookkeeping, by indicating 

 weaknesses in the structure of a business, may 

 save even a small concern thousands of dol- 

 lars, but unless the proprietor knows how to 

 make his accounts vital he is apt to have poor 

 bookkeeping. The head of a large establish- 

 ment, though he is able to hire accountants 

 to supervise his books, will not have the abil- 

 ity, unless he has an understanding of account- 

 ing, to read the full story which the books tell. 



Accountants. Those who practice accounting 

 (or accountancy, as it is called in England) 

 are of two sorts, private and public. The for- 

 mer give all their time to directing the ac- 

 counts of one organization. The latter are at 

 the service of all people. Their activities are 

 of three sorts: (1) auditing or examining 

 accounts to discover if they have been cor- 

 !y kept, or to give an impartial report upon 

 tin- affairs of a company; (2) advising what 

 accounts are appropriate for a particular busi- 

 ness; (3) in the British Empire, acting as 

 trustees, executors or administrators. 



A public accountant has one of the most 

 responsible positions in the business world. If 

 :*-d by the directors of a corporation 

 to audit its books he must not only look for 

 errors on the part of the bookkeepers but also 

 discover if tin- directors themselves, by acci- 

 dent or intention, are deceiving the stockhold- 

 ers and creditors with false reports. In a 

 certain instance an accountant examined the 

 books of a small corporation and certified that 

 re correct. The company had appar- 

 . made a handsome profit on the past 

 year's business, and through public faith in the 

 accountant's report it was able to borrow 

 Only a few months later it failed, 

 discovery was then made that instead of 

 ;MK money the company had been losing. 

 Thmimh thr incompetence of an accountant a 

 number of people had lost their savings. 



To guard against such wrongs most of the 

 states of the American Union and the Canadian 

 provinces have followed Great Britain in re- 

 quiring public accountants to pass examina- 

 tions. A Certified Public Accountant in the 

 United States or a Chartered Accountant in 

 Canada is one who has shown by examination 

 to possess not only a knowledge of bookkeep- 

 ing principles but of finance, commercial pro- 

 cedure and law. In some states and provinces 

 he must have a high school education or its 

 equivalent. 



To be a successful public accountant a man 

 should have a liking for analysis and for thor- 

 oughness and possess the consciousness that 

 his responsibility requires not only honesty 

 but constant alertness. 



Cost Accounting. Accountants have saved 

 the world millions of dollars by discovering 

 and preventing waste. The purpose of cost 

 accounting is to assign to each section of a 

 business its proper and full share of expense. 

 In figuring the cost of manufacturing an article, 

 for instance, not only such direct costs as the 

 material consumed must be charged to it, but 

 also a portion of the overhead expense, and 

 indirect costs like interest and insurance on 

 the stock and the wear and tear on the ma- 

 chines which make the article. By overhead 

 expense is meant that which goes on all the 

 time whether the machines are active or idle; 

 salaries of administrative officers and rent of 

 buildings are examples of it. 



Without the help of cost accounting a busi- 

 ness may continue for years losing money on 

 supposedly profitable undertakings. The in- 

 vestigations of the United States Department 

 of Agriculture are proving this particularly 

 true in the case of farming. 



Farm Accounting. The following is a brief 

 outline of a method of determining the exact 

 cost of any crop on the farm, and also illus- 

 trates the principles of cost accounting for any 

 business. It is based on the recommendations 

 of the United States government and will be 

 better understood if read in connection with 

 the article BOOKKEEPING, especially the section 

 called Farm Bookkeeping. 



Each crop must be charged with: 



(1) Items which enter directly into It* cost, 

 Huch as seed, Insect destroying chemical* and 

 izer. whether they are products of the farm 

 or purchases. 



Labor of men. If th< number of hours 



spent on each task Is noted every day, and at the 



>f the year the total cost of labor (Including 



a reasonable salary for t > I* divided by 



the number of hours which have been spent, the 



