Story of the sixth rule

              The Accounting Historians Journal Vol. 12, No. 1 Spring 1985
Benny R. Copeland NORTH TEXAS STATE UNIVERSITY
THE STORY OF THE SIXTH RULE
Abstract: This paper traces the development of the "sixth rule," the last of the six rules which the membership of the American Institute of Accountants approved at the 1934 annual meeting. The sixth rule appeared suddenly in the Report of the Special Committee on Development of Accounting Principles. It was added, al-most at the last moment, in response to the issuing of a "Stop Order" by the Federal Trade Commission (FTC) against the registration statement of Unity Gold Corporation. The profession joined the FTC in criticizing the method of account-ing employed by Unity. And, as a result, the sixth rule was added.
At the 1934 annual meeting of the American Institute of Accoun-tants (predecessor organization of the American Institute of Certi-fied Public Accountants), held October 15-18 in the Stevens Hotel in Chicago,1 the membership formally adopted six "Rules" of ac-counting:
1. Unrealized profit should not be credited to income account of the corporation either directly or indirectly, through the medium of charging against such unrealized profits amounts which would ordinarily fall to be charged against income account. Profit is deemed to be realized when a sale in the ordinary course of business is effected, unless the circumstances are such that the collection of the sale price is not reasonably assured. An exception to the general rule may be made in respect of inventories in which owing to the impossibility of determining costs it is
ACKNOWLEDGMENTS: The author wishes to express his appreciation to the following NTSU professors who reviewed earlier drafts of this article: Drs. Teddy Coe, Bruce Koch, Barbara Merino, and Ted Skekel. Any deficiencies which remain are the sole responsibility of the author.
Also, the author is grateful to the American Institute of Certified Public Accoun-tants for permission to quote materials cited in Footnotes 2, 6, 17, 19, 22, and 23; Copyrighted 1934, 1969, and 1973 by the American Institute of Certified Public Accountants, Inc. In addition, the author expresses his appreciation to the Schol-ars Book Co. for permission to use the material cited in Footnotes 7, and 11; Copy-righted 1971, and 1975 by Scholars Book Co.