Accounting — The Language of Business and Finance
by MAURICE S. NEWMAN Partner, Executive Office
Adapted from paper presented before American Management Association Seminars on Fundamentals of Finance and Accounting
for Non-Financial Executives—February and October 1965
THE NEW ERA of professional management ushered in by World War II has brought an awareness on the part of non-financial executives of the important part accounting plays in their day-to-day operations. Marketing managers, research managers, production managers, and other corporate executives have come to understand the effect of their financial statements on banks and the investment community. They realize that a corporation must earn an adequate return on the sums invested and that it needs to pay dividends to stockholders to attract new capital as required for growth and expansion.
At the same time there have been tremendous changes in the field of financial accounting and a considerable broadening of the area now generally known as management accounting. So great has been the expansion that even those with more than a superficial knowledge of these areas find it difficult to remain familiar with all branches of present-
day accounting. In earlier days many companies were satisfied with a set of annual financial statements, a cost accounting system, and a few financial ratios or operating statistics. For most companies these now have broadened into responsibility accounting systems, budgetary
control, standard costs, break-even charts, cash forecasts, profit planning, inventory control, and analyses of return on investment by divisions or products.
Actuarial and statistical techniques have been combined with the processing ability of electronic computers to assist in sales forecasting, production scheduling, new-product development, and capital budgeting. New forms of off-balance-sheet financing, such as equipment leasing, sale and lease-back transactions, and carved-out production payments have been added to the traditional forms of debt and equity financing. The need to reinvest surplus corporate earnings has led to mergers and acquisitions, time deposits, negotiable certificates of deposit, and other means of gaining income from idle funds.
Nor should we minimize the statutory problems brought about by enactment of tax legislation, manifesting itself in such matters as LIFO inventories, accelerated depreciation, guidelines, and the investment