Just In Time Deliverance

In honor of the holiday, this months spotlight on an accountant in history we are going to look at the 16th century British town of Aberdeen.  During the reign of King James VI there was a spike in witch trials in Aberdeen, going from 1 or 2 a year to 31 in 1597. So why is this worthy of mention in an accounting blog? One of the town's elected officials, the Dean of Guild, anticipated the rise in witch hunts and stock piled the necessary supplies needed to burn a person at the stake.

The Dean of Guild itemized all his purchases during this time, giving us a chance to see the £ 178  cost of the witch burnings broken down. The  dean of guild, a pioneer in job costing, listed the costs of execution by defendants. He is even able to take what we normally consider overhead, and assign the cost of heating  during the trials to specific "witches". 

Actual itemized records from 1597

As a last note, while the name of the Dean of Guild during this time was lost, we do have the name of the executioner: John Justice. This has to be the greatest name for an executioner ever.

Sources:

• Kennedy, William. "Annals of Aberdeen" 1818
• Hain, H. P. "Some Burning Matters" Journal of Accountancy. April 1972

A Textbook Retrospective

With school starting back up, I thought I would focus on a topic that is an issue with students at the beginning of every semester: Textbooks. During my undergraduate program, the book we used is, considered by some to be the best accounting textbooks out there for preparing students for the issues covered on the CPA certification exam, Intermediate Accounting by Kieso, Weygandt, & Warfield.

While my instructors required the 13th edition, I tried to skate by with only using the 12th edition and just photocopy the problem sets from fellow classmates who purchased the 13th. I would often sit there with both editions trying to figure out what changed to merit a new publication. Most of the times the only change I could find was the color of textboxes and the variables used in the problems.

Inspired by this summer's 125th anniversary of the Journal of Accountancy, I decided to get my hands on a first edition of Intermediate Accounting and see what has changed over the years. The first edition was published in 1974 with a page count of--Wait, I can make this more fun.

Ring Announcer: In the red corner, coming out of retirement, the 38 year old weighing in at 3 pounds and 9 ounces. With a respectable page count of 1151 pages, here he is INTERMEDIATE ACCOUNTING 1st Edition!

Blow-by-blow commentator: In the corner with him we have two authors: Kieso and Weygandt. While rising to the top with his publication 1974, he was replaced as champion by the slightly less famous second edition in only 1977. Will his experience getting published first help him against his competitor today? Well we will find out in three short rounds.

Ring Announcer: In the blue corner, the new-comer, the 2 year old, weighing it at 5 pounds and 6 ounces. With the backbreaking page count of 1379 pages, the reigning champ, INTERMEDIATE ACCOUNTING 13th Edition!

Blow-by-blow commentator: In the corner with him we have Kieso and Weygant, but also a third author: Warfield. Containing color images and bolded keywords, he seems to be the easy favorite for the modern student. Will this third author simply be a bucket man or will he be the key to the success for the 13th edition?

Round 1: Problem Sets

The only reason students still buy textbooks. While teachers hope their pupils read the chapter before going to lecture, my experience says otherwise. (Note to any of my former professors  reading this: I, of course, was the exception to this rule.) To test this questions I worked through multiple questions from each book in the same chapter.

Each textbook has the problems broken up into different types. For the 1st edition it is Questions, Cases, and Problems. In the 13th edition it is Questions, Brief Exercises, Exercises, Problems and Concepts for Analysis.  Many of the questions found in the 1st edition are still found verbatim in the 13th. <Point 1st Edition> However the development of the Brief Exercises and Exercises help students ease into the homework before being hit by the complex laborious Problems. Some of which take an hour to complete. <Point 13th Edition> Finally, one of the things that I was surprised to find in the first edition was a selection on the inside cover called "Checklist of Key figures". Brilliantly, it gives key check numbers from about half of the questions in the chapter. These numbers aren't always the answer that is asked for but it does help students know if they are doing it right. <Point 1st Edition>

Round 2: Examples
In lecture, it all makes sense. Everything the Professor did on the board seemed simple and logical. Then the night before the assignment is due, panic sets in and the spine of the textbook is cracked. I am basing the quality of examples on their accessibility and their usefulness in completing the questions at the end of the chapter.

I chose to focus on a chapter that covers a topic where the rules have not changed much over the past 40 years: Depreciation. To my surprise almost nothing has changed. The examples found in the first edition are mirrored word for word, number for number in the thirteenth edition. It is pretty amazing that authors could write examples 40 years ago what don't merit any changes for a modern audience  <Point 1st Edition>  But equally as amazing is that the publishers resisted the urge to change the examples. Allowing students who have older editions to follow along as instructors work through the example.  <Point 13th Edition>  (If you were curious I said almost nothing changed. The one change is the example in the 1st edition was Barek's Mining Company and in the 13th it was Stanley's Mining Company)

Round 3: AccessibilityThe final round will look at the rest of the book. Do all the words that fill these 1000+ pages help? How good is the book at introducing topics to a novice? Are the pretty pictures helpful? Necessary?

Similar to my findings in the example round, the text of both books are eerily similar. Sentence after sentence is mirrored. Occasionally, the thirteenth edition adds modern references, but they seem so superfluous that I can't award any points for it. Picture wise the books are again a dead heat. The colored in text-boxes of the thirteenth edition are equally as striking to they eye as grayed out text-boxes in the first edition.

Winner: 1st Edition

Editor's Note: Earlier I praised the 1st edition for its checklist of key figures. I found it rather ingenious. Especially now,  I study for certification exams. As I go back and practice, I have no idea whether I was right or wrong unless I beg former professors to check their answer bank. But I sadly learned that my favorite feature did not survive into the second edition. Replaced with a list of Official Accounting Pronouncements.

To see the photo montage that inspired this post click here.

Jerry Nelson, puppeteer, dies at 78

The count was my inspiration for the theme of this blog. (Though I hope the similarities are not similar enough that Sesame Workshop decides to bring suit.) The Count Von Count hearkens back to the early days to Sesame Street when the Muppets were clearly hybrids between monsters and puppets. 

The Count made counting fun in ways that none of the other skits on Sesame Street could. Also, he taught us to respect eastern European hereditary titles. According to the LA Times obituary, the 43rd season of Sesame Street will include voice work already done by Nelson. Whether his true legacy is teaching kids to love numbers and Bela Luousi or leading generation to have a predisposed attraction to vampires and love triangles with Bella Swan has yet to be seen. But I for one hope it's both.

Spotlight on an Accountant: Edward T. Jones

In honor of the Olympic Games, I decided to write about the role of the United Kingdom in accounting’s history. Originally, I considered doing something on the Scottish Chartered Accountants. Once I delved into it, I realized I was in over my head. It is like trying to write a quick blog post on the effects Shakespeare had on English literature. Not that I will ignore the monument effects of the Scots on accounting, it will just take me more than the 17 days the Olympics give me to properly write about it.

There have been dozens of authors of accounting textbooks since Pacioli. Each one tries to tweak or perfect the Italian method of double entry accounting. Edward T. Jones is one of my favorite. Not because I really think he added anything to the profession. Rather. I admire how much money he made from a textbook that added so little to the practice of accounting. (I’m looking at you modern textbook companies.)

I first came across Jones’s English System of Book-keeping, by Single or Double Entry (1796) when I was researching Pacioli. I was researching the movement of the italian method across Europe. Jones’s book was one of the earliest accounting textbooks I could find being written English. At the time, I did not understand how the Italian roots of accounting went untaught. I found part of my answer with Jones. He tried to undercut and essentially destroy the Italian method by designing his own English method. The joke in this all is, for all his insulting of the italian method, his system does nothing to deviate from its principles.  

A poorly written book does not a successful author make. So how did Jones make all his money? kickstarter.com (well, sort of) He sold pre-orders of his book through a sort of prospectus. At the cost of a guinea, it gave the purchaser a subscription to the book as well at a license to use the practice of accounting used in the book. The prospectus was was filled with testimonies and lists of his subscribers. Somehow he elicited subscriptions from the governor or the Bank of England and Peele (an accountant who wrote good textbooks). So essentially, Jones could say all these famous and respected men bought the license to use his accounting system, when in reality they probably had a mild curiosity about Jones’s “new system”.
 

Historic Conversion

So unless you are a History major or a huge fan of English Literature,you probably don’t know how to convert outdated British currency.  I was happy to found the answer outside of Wikipedia. All of the following comes from a website http://projectbritain.com/.

    1 guinea = 21 shillings

    1 pound = 20 shillings

So why have two denominations for relatively the same amount of money? Status. The guinea was the gentleman’s coin. You paid workers in shillings and fellow gentlemen in guineas.

The £1.05 Jones’s book/license cost roughly converts to $20 in today’s money.


As a post-script. Jones's system was so confusing and so prone to arithmetic errors that by 1831 the author himself abandoned its use.


Editors Note: 


For all of you who watched the opening ceremonies of the Olympics last Friday, you are familiar with the amusing geography lessons of Bob Costas. He is always eager to explain why North Korea marches in with the Ds (Democratic People's Republic of Korea) and all the different names the Ivory Coast go by. What he didn't teach us this year is why sometimes it is Great Britian, sometime it is United Kingdom, and on rare occasion it is England. If anyone can answer this for me without looking at Wikipedia or Yahoo Answers, I would really appreciate it.


Sources:
- Brown, R. A History of Accounting and Accountants. (1905)
- Edwards, J. R. The Routledge Companion to Accounting History. (2009)
- Kojima, O. Accounting History. (1995)
- Parker R. H., Yamey B. S. Accounting History: Some British Contributions. (1994)

Debits and Credits: Pt. 2

The Duchy of Urbino. 

Although he is considered the father of modern accounting, Pacioli never intended to be. Rather he was trying to write a math textbook for his students. At the time Pacioli was the tutor to sons of rich merchants.. Every time he had to design a new lesson or look up a trigonomic relation, he had to travel back to the library of the Duke of Urbino--a weeks travel.

Pacioli, teaching math.
Geometry, based on what he is drawing,
and he reading out of Euclid while
the Duke of Urbino watches
creepily from behind.

So he decided to write a math textbook. Now, why I call it a textbook is that it was different than most of the academic works of its time. It was written in Latin AND Italian. The language choice is what differentiates this work from other academic writings. Most scholars wrote in only Latin because they were writing for other scholars. Pacioli chose to write in mainly Italian because this book was for the masses not for the elite few cloistered in universities and libraries.

WARNING: Below Sean postulates on Pacioli's motives without academic/peer reviewed sources

Now why was accounting put in a math textbook? I have two reasons: one historical and boring, and the second is pure conjecture (and much more fun).

Reason 1: The Business major hadn't been invented yet. All studies were traditionally in latin and universities more  focused on studies of divinity and science. Schooling was a luxury. Most students were nobility or preparing for a life of the cloth. Applied mathematics, such as accounting, where most commonly taught in apprenticeships.

Reason 2: His benefactors encouraged him to include it. Again let me remind you this is conjecture. Remember Pacioli  is tutor to sons of wealthy merchants. They are ensuring this friar lives quite comfortably (as evident by his personal accounts he uses as an example in teaching inventories). If they asked him to include a section on the skills needed for their sons to follow them into mercantilism, how could Pacioli refuse.

Pacioli on Accounting

The section on accounting is rather small. Frankly tacked on at the end of the book. It is a relatively short introduction to the subject. Although it contains 36 chapters, it really only amounts to about 50 pages. He starts simply enough explaining how so set up your books then teaches basic journal entries, and works his way toward a trial balance. Yet, through all of that, he is able to fit in a chapter where he does nothing but give advice--on more than just accounting, on life in general. 

I will write more about this in the future. Give quick mini-lessons on Pacioli's technique and compare it to what is taught in this modern era. It is rather amazing how many of his techniques are still in use to this day.

While not the Vitruvian Man,
Leonardo Da Vinci taught perfect
penmanship in Pacioli's work
"De divina proportione"

So there it is. The story of Pacioli's writings on accounting. This however is not the totality of his life. Pacioli went on to write many more books. One of his other works was referenced in the pop culture sensation writings of Dan Brown. He went on to befriend and work with Leonardo DaVinci They traveled together and worked on two books together. It is an amazing thing, when one of the greatest minds of the Renaissance is willing to illustrate the writings of this forgotten Friar. If time permits me I hope to talk more about the writings of Pacioli and his life after "De Scripturis" 

Debits and Credits: Pt. 1

My first memory of intro to accounting (besides realizing taking a summer class in a lecture hall without windows was a big mistake) was our instructor trying to teach us the idea of debits and credits. He tried to relate it to our understanding of debit cards and credit cards, but that devolved when he started into rant about how their names should be switched.

I figured this is a good place to start, right? Study the history/origin of the terms debit and credit. Little did I realize that this once simple idea would start me on months of research and take me back to the end of the 15th century to the beginning of double entry accounting.

Turns out the guy who first used the terms debit and credit was the first person to ever to write down the double entry accounting system. Fr. Luca Pacioli is the father of accounting and he never gets any credit. I don't quite understand how he gets completely passed by in accounting curriculums. Most biology majors are required to at least read sections of "Origin of Species," but in Accounting you dive right into the current system. The only historical perspective that accounting classes ever really give is the mention of IFRS (the International Financial Reporting Standards) and the acknowledgement that one day GAAP might be history.

So how does he introduce and teach these new terms of debit and credit? Simply put, he doesn't. While this is the first book to use debit and credit, he never gives much explanation on the words. Pacioli assumes the reader has an understanding of debtors and creditors. He does, however, devote a chapter--even if the chapter is only a paragraph long--explaining two other terms: "per" and "a". These terms act as our modern abbreviation "dr" and "cr".

This is a screen shot of the first use of the words (and maybe also my current Facebook cover photo)

While this could be viewed as the answer to my simple inquiry and its time to move on. I learned a lot about the history of bookkeeping and want to use this as a jumping off point for a series of posts on Pacioli and his treatise on double entry accounting.

Proust had his cookie, I have my debits and credits. (That reference is for my family friend in Racine, or any  other long suffering academics who happen to be reading this blog).

Yours,

Sean "suddenly finds himself an ardent Thunder fan" Clyne

Beyond the Balance Sheet: Yum! Brands

This will be the first of an on going series where I will focus on one company (usually public) and report on the interesting parts of the annual report/10k.

If you are like me, you are looking forward to the 138th Kentucky Derby more than the celebration of the battle of Puebla. The only time of the year that the general public pays attention to the sport of kings, the Kentucky Derby will be broadcasted today on NBC. For those of us who live too far way from Churchill Downs or cannot find a hat large enough we are forced to watch the race on TV. This will be the one time a year the parent company of the fast food joints Taco Bell, KFC, and Pizza Hut advertise under its own name. I never understood why a company that brings in $10 billion dollars a year only advertise once a year.

So in honor of the Mexicans victory against the French, I want to look at a company whose specialty is selling Mexican, Italian, and "Kentuckian" food: YUM! Brands. It was spun off from Pepsi in 1997. They have over 35,000 restaurants worldwide. But this is all information you could find on the company's entry on Wikipedia. I wanted to go beyond that by looking at interesting segments of Yum!'s most recent annual report. 

Out with the Old, In with the Bah Ram New?

At the end of 2011, Yum sold of two of its brands: Long John Silvers and A&W restaurants. Truth be told, I did not know they ever owned the two fast-food chains. They theory was they could package these brands (or as they call "concepts") with the already successful restaurants. It worked well with their core brands. But after 10 years, the two restaurants only contributed to 1% of Gross Operating Profits.

Sort of looks like the Starbucks logo doesn't it?

Yum! Brands set its sights on what it considers the best place for growth: China. The first KFC opened in China in 1987, with Pizza Hut following in 1990. While KFC and Pizza Hut represent some of the most successful fast-food restaurants in China today, Taco Bell never found success there--opening in 2003 and closing in 2008. Starting in 2009, Yum! Started investing in a hot-pot restaurant chain: Little Sheep. In 2011, they announced their intent to gain a controlling interest in the company.

I have never heard of Hot Pot before.  My initial reaction was it was basically Chinese  fondue. Each table is giving a simmering pot of broth and plates full of raw ingredients, which are added to the customers liking. I doubt that Yum! Foods will export the idea back here to the States but I would like to try it.

Refranchising and Russia

When reading Yum!'s annual report, barely go a page goes by with out them using the term refranchising. It seems to be the new hip term in the franchise world that basically means turning the company owned units into franchises.  Google the term and you will find articles about every major franchisor trying to "refranchise". It is a great way to raise capital. While refranchised restaurants are sold at a loss, the company makes it up with lower operating costs and new sources of franchise and licensing fees.

Russian KFC, before the 2011 rebranding.

China isn't the only country Yum! is exploring. While Pizza Hut was in Russia since its inception, KFC had a hard time to getting going in Russia. After its first attempt didn’t work KFC entered into a partnership with a Russian company Rostik in 2005. In 2010, Yum! exercised its option to purchase the Rostik's interest in the partnership. While it is unsurprising, it is sad to announce they are rebranding to simply KFC.

Yum! Brands Quick Hits:

State of Incorporation	North Carolina	Look forward to an upcoming post about the best states to incorporate in.
Headquarters	Louisville, KY	Hence sponsoring the Derby
Chairman of the Board	David Novak	Also CEO and Pres.
Executive Compensation	$6 million	$1.45 base salary + $4.54 bonus award
Cost of Goods Sold (listed as Food and Paper)	$3.6 billion	That’s a lot of tacos, or we should seriously wonder the value of the paper they are wrapped in
Basic Earnings Per Share 2011	$2.81	Up from $2.44 in 2010 and $2.28 in 2009
Dividend 2011	$1.07	I think as a general rule, they should always keep something on their menus cheaper than the declared dividend

Editors Note:

If you noticed I didn't spend this article talking about the numbers. I could have rattled off numerous ratios and financial trends to show the health of the company, but this isn't a financial blog.  Accounting is more than just numbers.  Don't get me wrong I thought of spending the whole post writing about Yum! Brands defined benefit pension plan, but I even bored myself at the thought of it.

The reason Defined Benefit Pensions are interesting is they are often the last thing taught in accounting programs. They as archaic and difficult to learn as the slide rule. While no company loves its employees enough to currently offer such a plan, accounting students will be required to learn about it until the baby-boomer generation dies out.

Sources:

- Yum! Brands Annual Report 2011 

- Narizhnaya, K  "KFC Swallows Rostik's and Expands" Moscow Times September 7th, 2011