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and its Contact with Accounting

The American Institute of Accountants and every state having a C. P. A. law has among its requirements an examination on commercial law.

The field of business venture with which the accountant is concerned is so broad in its scope that instances have arisen in which a knowledge of the principles of all branches of law has been necessary, excepting such subjects as admiralty, pleading, torts, patent law, questions on constitutional and criminal law, and a few other special subjects.

In examinations of large manufacturing corporations, accountants are liable to encounter questions involving the general as well as the statute laws governing corporations; the law of contracts, applying to notes, sales, agency, insurance, bailments, chattel mortgages, liens, landlord and tenant, mortgages, etc, ; real property law; and the state and federal statutes relating to the duties and obligations to report the extent, nature and cost of the various branches of work.

In investigations of receiverships a knowledge of the rules and practices in the courts is necessary.

In the preparation of Income and Excess-Profits Tax returns a knowledge of the Income Tax laws and regulations is a necessity. In recent years this has become a prominent part of the accountant's work.

Examinations of testamentary trusts and estates of decedents require a knowledge of the law of real property, the law relating to wills, administration, partnership, including a knowledge of statutory and common law and equity, and of the law of practice and procedure at law in the different courts.

It will be seen, therefore, that commercial law has but few limitations. To the uninitiated, it would seem to be a very difficult matter to gain a sufficient knowledge of commercial law. However, it is not as difficult as it at first appears to be.

An accountant would not be expected to have an accurate knowledge of the various statutes of the different states, but he should know when a statute would be likely to cover the case at hand. Invariably there will be sufficient time to look up a statute, therefore, it is not demanded that accountants have more than a general acquaintance with the statutes.

Of course, such statutes as the STATUTE OF FRAUDS, the NEGOTIABLE INSTRUMENTS LAW, the UNIFORM SALES ACT, and BANKRUPTCY LAWS should be well understood. The statute of frauds and the negotiable instruments law are nearly uniform, having been adopted in most of the states of the union.



Generally speaking, law may be classified as either WRITTEN or UNWRITTEN.

Written law is the law set forth in our federal and state constitutions and our federal and state statutes.

Unwritten law comes from the reported decisions of courts. Not all rights and duties as between individuals have been defined by either state or federal constitutions or statutes. When written law does not cover a case, unwritten law applies.

The law of the land is called MUNICIPAL LAW. In this country it is partially written and partially unwritten. The written law is subdivided into CONSTITUTIONAL and STATUTE LAW. Unwritten law is often referred to as COMMON LAW.

The order of importance or precedence of the various kinds : of law is as follows:

I. Federal constitutional law.

2. Federal statute law.

3. State constitutional law.

4. State statute law.

5. Common law.

A law is declared UNCONSTITUTIONAL when the courts decide that it conflicts with the laws of higher order. An example of this is the recent decision of the Supreme Court of the United

States, declaring unconstitutional that part of the 1916 Income Tax Law which placed a tax on stock dividends.

Commercial law is that part of municipal law which applies to commerce, that is, to business transactions.

The following chart shows clearly the main divisions of Municipal law:

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A. THEORY QUESTIONS 1. What are the major objects of an audit? C. P. A. Mich.

2. Give a brief outline of the duties and responsibilities of an auditor and what special qualifications and training he should possess. C. P. A. La.

3. Explain how certified statements extending over a period of years might facilitate the sale of a business.

4. (a) What is your understanding of the term accounting? (b) What constitutes a scientific system of accounts?

C. P. A. Ind. 5. Define bookkeeping. State various kinds with explanations. C. P. A. Mich. 6. State the relative advantages and disadvantages of single entry and double entry bookkeeping. C. P. A. Ohio

7. State the essential principles of double entry bookkeeping, and show wherein it differs from single entry bookkeeping. C. P. A. N. Y.

8. The A. I. Mfg. Co. employs a staff of bookkeepers. The head bookkeeper has not studied the theory of accounting, neither has his experience been extensive. He understands double entry bookkeeping, but he cannot be described as a well trained accountant.

Previously the A. I. Mfg. Co. has been satisfied with annual accounts prepared by competent auditors. They decide to have monthly statements of accounts in the future, and with this end in view, instruct the head bookkeeper to prepare statements on the same lines as the last annual accounts were prepared.

State several imaginary errors of principle that might not

unreasonably be found upon an expert examination of his work. C. P. A. Ill.

9. How would you determine the profits for a given period from a set of books kept by the single entry system, the capital at the beginning of the period being known? C. P. A. Me.

Io. What information can you get from a set of books kept by double entry which you can not get from a set kept by single entry? C. P. A. Mich.



I. The following information is obtained from a set of books kept by the single entry method:

Capital at Beginning of Period. . . . . . . . . . . . . $8,500.00
Withdrawal from Investment during Period. 1,000.oo
Additional Investment during Period. . . . . . . 2,500.OO
Present Capital. . . . . . . . . . . . . . . . . . . . . . . . . . I 2,500.OO

Find the net profit or loss.

2. Day and Wright have been doing business as partners, and have kept their books by single entry. From their books and Inventory you find the following Assets and Liabilities: Mdse. $9,241.oo; Cash, $850.oo; Real Estate, $3,000; Bills Payable, $975.oo; W. M. Day's Capital, $5,390; T. J. Wright's Capital, $6,400.00. They owe personal accounts, $4,175.oo. Persons owe them, $6,941.00. Store fixtures, $571.oo. Profits are shared equally.

Determine the loss or gain. Draft a journal entry to change the books from single entry to double entry, assuming that the old ledger is to be retained and used with the new system.

3. Prepare steps and show procedure necessary to convert to double entry from single entry the schedule of assets and liabilities of which, taken from the latter, appear as follows:


Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,000.00
Merchandise Inventory. . . . . . . . . . . . . . . . . . . 7,500.00
Notes Receivable. . . . . . . . . . . . . . . . . . . . . . . I,500.OO
Accounts Receivable. . . . . . . . . . . . . . . . . . . . . 5,000.00
Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500.00
Plant and Equipment. . . . . . . . . . . . . . . . . . . 2,000.00
Furniture and Fixtures. . . . . . . . . . . . . . . . . . I,000.00



Notes Payable... . . . . . . . . . . . . . . . . . . . . . . . . $ 4,000.00
Accounts Payable. . . . . . . . . . . . . . . . . . . . . . . 8,500.00

Excess of assets over liabilities, being capital 20,000.oo $32,500.00 (Assume that a new ledger is to be opened. Draft a

journal entry to change the books from single to double entry but do not set up ledger accounts.) C. P. A. Ind. C. LEGAL QUESTIONS

I. What is meant by “municipal” law?
2. Name three kinds of “municipal” law.

3. Show wherein constitutional law differs from statute law.

4. Common law is sometimes also called the “unwritten” law. Explain why. S. Give the order of precedence.

6. When there is a conflict between a statute and common law, which takes precedence?

7. Why is a general knowledge of legal principles desirable? - C. P. A. Ind. 8. (a) Define commercial law.

(b) What are the general divisions of law?
C. P. A. Mich.

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