NCJ Number
65708
Journal
BUSINESS HISTORY REVIEW Volume: 52 Dated: (WINTER 1978) Pages: 518-536
Date Published
1978
Length
19 pages
Annotation
MUNICIPAL ACCOUNTING PRINCIPLES DEVELOPED IN RESPONSE TO REQUIREMENTS OF ECONOMIC, SOCIAL, AND ACCOUNTING ENVIRONMENTS IN THE EARLY PART OF THIS CENTURY AND HAVE UNDERGONE TWO DISTINCT PERIODS--1900-1920 AND 1920-1935.
Abstract
THE PERIOD FROM AROUND 1900 TO 1920 WAS MARKED BY AN APPARENT OVEREMPHASIS ON THE SIMILARITIES BETWEEN COMMERCIAL ENTERPRISES AND GOVERNMENTAL OPERATIONS, WITH THE RESULT BEING AN ATTEMPT TO CLOSELY ALLY ACCOUNTING METHODS OF MUNICIPAL GOVERNMENTS WITH THOSE OF PROFITMAKING ENTERPRISES. THE 1920'S AND 1930'S WERE DOMINATED BY THE CUSTODIAL OR STEWARDSHIP FUNCTION OF MUNICIPAL GOVERNMENT, WHILE LATER ACCEPTED OBJECTIVES OF ACCOUNTING INDICATE THAT FINANCIAL STATEMENTS SHOULD PROVIDE INFORMATION NECESSARY TO MANAGE A UNIT'S RESOURCES AND HELP ACHIEVE GOALS. A LOOK AT HISTORICAL REASONS FOR THESE CHANGES SHOWS THAT THE RAPID GROWTH OF CITIES IN THE LAST HALF OF THE 19TH CENTURY LED TO INCREASED INTEREST IN STATE AND MUNICIPAL ACCOUNTING PROCEDURES. A REFORM MOVEMENT TO INTRODUCE GREATER UNIFORMITY BEGAN AROUND 1900 WITH THE ACTIVITIES OF THE NATIONAL MUNICIPAL LEAGUE. THEIR REPORTS RELIED ON PRINCIPLES OF COMMERCIAL ACCOUNTING. BY 1912, MOST STATES HAD ENACTED LEGISLATION REGARDING UNIFORM ACCOUNTING SYSTEMS. MANY WRITERS AT THIS TIME SUPPORTED THE REVENUE AND EXPENSE METHOD AS OPPOSED TO THE RECEIPTS AND EXPENSE METHOD PREDOMINANT IN MUNICIPALITIES. FREDERICK CLEVELAND, THE LEADING PROPONENT OF THE COMMERCIAL APPROACH, DIVIDED MUNICIPAL FINANCES INTO TWO AREAS: (1) CURRENT EXPENSES AND PROPERTIES AND (2) EQUIPMENT NECESSARY FOR CITY FUNCTIONS. INCLUSION OF BOTH TYPES OF INFORMATION IN THE MUNICIPAL BALANCE SHEET ENABLED THE CITY TO PLAN FOR THE FUTURE. THE NEW YORK BUREAU OF MUNICIPAL RESEARCH WAS ORGANIZED IN 1906 TO DOCUMENT THE EXPERIENCE OF NEW YORK CITY IN REVISING ITS ACCOUNTING METHODS. THE BUREAU ESTABLISHED A SUCCESSFUL TRAINING SCHOOL IN PUBLIC ADMINISTRATION AND PUBLISHED THE METZ HANDBOOK OF MUNICIPAL ACCOUNTING, THE FIRST U.S. TEXTBOOK ON THE SUBJECT. THE BOOK RECOMMENDED THAT MUNICIPAL ACCOUNTING PRINCIPLES SHOULD EVOLVE LOGICALLY AND NOT BE LEGISLATED. DURING THE 1920'S, PERSONS REACTING TO THIS APPROACH THEORIZED THAT THE MUNICIPAL BALANCE SHEET SHOULD CONTAIN ONLY REALIZABLE ASSETS ASSOCIATED WITH EXPENDABLE FUNDS, EXCLUDING PERMANENT PROPERTY AND DEPRECIATION, THUS THE CUSTODIAL OR STEWARDSHIP FUNCTIONS OF MUNICIPAL GOVERNMENT. BY 1933, WIDESPREAD INTEREST IN MUNICIPAL ACCOUNTING PRINCIPLES CULMINATED IN A SPECIAL CONFERENCE IN CHICAGO WHICH ORGANIZED A COMMITTEE TO SOLICIT OPINIONS AND DEVISE NATIONWIDE ACCOUNTING STANDARDS. FOOTNOTES ARE PROVIDED. (MJM)