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              Bulletin HASKINS & SELLS 39
Book Review
McKinsey, J. O., and Meech, S. P.
Controlling the Finances of a Business.
(New York, The Ronald Press Company,
1923. 638 p.)
This book may be somewhat flippantly
described as neither fish, flesh, nor fowl.
It is rather a combination of the three, a
fact which contributes to, rather than
detracts from, its usefulness.
From an accounting point of view its
value lies chiefly in the background which
it develops for accounting practice. With­out
specifically attempting to do so, it
combines a large amount of fundamental
information bearing on organization, man­agement,
economics, finance, and business
law. Since accounting practice must of
necessity be concerned with all these phases
of business activity, familiarity with such
phases is obviously essential to good prac­tice.
The benefit of reading a book of this
character accrues to a student of account­ing
largely because the book stresses the
theories on which financial practice is
based rather than their interpretation for
accounting purposes or any consideration
of how the facts should be expressed in
financial statements. For example, speak­ing
about control of selling expense:
"This control involves three steps:
1. Determination of what should be in­cluded
in selling expense, and the setting up
of a proper classification thereof.
2. Determination of standards by which
to judge the amount of selling expense and
the use of these standards in the formulation
of a selling expense budget.
3. Determination of methods of enforcing
the standards set and the execution of these
methods."
The book also makes one very valuable
contribution bearing on the time-worn
question of borrowing money in order to
pay dividends in cases where the profits
have been sufficient to justify dividends,
but the cash resources are not available
except through the incurring of obliga­tions.
On this point the authors say:
"As a matter of general financial policy,
debt should be incurred only to increase
earning assets. Debt incurred to pay out
cash to stockholders is usually poor financial
policy. There are some exceptions to the
rule, however:
1. In case cash is expected, e.g., from the
sale of securities or from liquidation of inven­tories
in a seasonal business.
2. In case dividends on preferred stock
have accumulated and the earnings of the
corporation are adequate to pay fixed charges,
current dividends on preferred, and a con­servative
rate on common stock.
"The American Can Company, for example,
paid off accumulated preferred dividends
amounting to 31¼% on $41,233,000 preferred
stock in 1913 by selling an issue of 5% deben-