Reviewed by William G. Mister Texas A&M University

Accounting Theory by Harry Norris is an Arno Press reprint of the 1946 edition, with a new preface by the author. The new preface serves as a good self review of the original work published over thirty years ago. In it, the author notes that an issue of current interest—accounting for rising prices—was “skated over” in the book. It would have been interesting to know the author’s current views on this issue. In the book he firmly rejects the concept of a balance sheet as a collection of valuation accounts. Consistent with his earlier work, Norris would probably favor a constant dollar approach over a current value approach.

The book was intended to develop a needed, but non-existent theoretical structure of accounting. The practice of accounting grew in a haphazard, piecemeal manner. As practical problems arose they were resolved in a pragmatic fashion by consensus and compromise. The author felt, and still feels, that without the benefit of solid, received principles, accounting practice will continue to suffer. He notes in the new preface that in the thirty years since publication “not much has changed—certainly not enough!”
Norris takes a normative approach to developing accounting theory. He declares, “lt is possible to derive ‘first principles’ by a process of reasoning more or less abstractly, and then to compare existing usage in accountancy with a theoretical ideal.”

The main theme of the book, similar to Paton and Littleton’s monograph, is the necessity of matching costs with revenues. Norris begins by developing a “theory of profits.” The rules for as-certaining profit are: (1) profit arises when a sale is made; and (2) profit is to be computed by apportioning cost to related revenue. These rules are indicative of the conservative approach taken throughout the book.

Norris was an early advocate of direct costing. He argues that expenditures for the formation of future services to be rendered to customers should be carried forward as unexpired values of “some kind.” Expenditures incurred which do not vary with the amount produced during the accounting period should not be attached to the physical stock of products. He maintains that “such a method of computation is correct only for expenses like ‘raw materials’ and ‘productive labour’ which vary directly with physical production.”

Norris’s concept of a balance sheet is one of residual balances. The balance sheet is not a classification of valuations, rather, it is a classification of “expenditures” according to the benefits accruing to the next or later accounting periods. The example of a bal-ance sheet has, four asset classifications, (1) capital expenditures (capacity expenditures); (2) production expenditures (inventories at prime cost); (3) expenditures on accruing rights (e.g., insurance); and (4) publicity expenditure. While this idea of a balance sheet does not agree with the current movement toward more valuation, the classification scheme is interesting. Leases, for instance, which do not fit well in present balance sheet classifications, would be either a “capital expenditure” or an “expenditure accruing rights” depending on the nature of the lease.

In rejecting the concept of goodwill the author gives a rare glimpse at his ability to write in an interesting style. “If X is a live pedigree dog and Y a dead one, then perhaps X — Y = Z. But Z means nothing in itself. The label “goodwill” in business accounts closely resembles Z: its use is as sensible as trying to find what makes the dog tick by dissecting it.”
I found the intertwining of the author’s proposed “theory” with his description and analysis of then existing practice to be, at times confusing. To distinguish between what was being advocated and what were rationalizations of practice required careful reading.

Norris provokes much thought in Accounting Theory, The book documents an early plea for a solid foundation of theory upon which the practice of accounting can be built. These plans, though often repeated, as yet are unanswered. In my opinion, the reprinting of this book was a worthwhile undertaking.