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This section under the old law provided that an annual report, covering specifically defined items, should be filed by the carriers. It also stated that the Commission might, within its discretion, prescribe a uniform system of accounts for all carriers subject to its jurisdiction. No provision was made, however, for the enforcement of such orders as the Commission might make relative to reports or to accounts, except by the tedious process of a case in equity. From 1887 to the present time the twentieth section of the Act to regulate Commerce has been administered practically without appeal to the courts. Barring cases to insure the prompt filing of reports, there have been but two cases involving the authority of the Commission under this section of the law since its organization, one of which was abandoned because it was felt that the result was very uncertain, and the other, carried to the Supreme Court, was decided against the Commission on the ground that the law made no formal provision for mandamus process. This defect was remedied by the amendment of 1906, which, taken in connection with the penalty features of the law, gives vitality to a section which, from the point of view of effective administration, had been little more than an expression of legislative opinion favorable to general publicity.

There are three provisions in this section as amended which call for special mention for the reason that they indicate the character and extent of the work the Interstate Commerce Commission has undertaken upon the basis of the authority conferred.

In the first place monthly and special reports, as well as annual reports, may now be demanded of the carriers.

In the second place the law provides for a uniform system of accounts for all transportation agencies subject to the jurisdiction of the Commission. The transportation agencies here referred to are steam carriers by rail,

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electric carriers by rail, express companies, sleeping car companies, water carriers so far as they are subject to the jurisdiction of the Commission, and pipe-lines. The purpose of Congress in passing this law, and of the Commission in making provision for its administration, is to provide a uniform system of operating and financial accounts for all of the agencies of transportation, so far as this may be accomplished without doing violence to the physical or contractual conditions under which the several classes of business referred to are carried on. It is important that the comprehensive character of the uniform system of accounting, which it is the purpose of the Commission to promulgate, should be recognized. There are, of course, many questions of jurisdiction involved in the promulgation of such a general system of accounts, but the embarrassments likely to arise on this account have in large measure been relieved, so far as administration is concerned, by the expression on the part of State authorities of their willingness, indeed their eagerness, to accept the rulings of the Commission in all matters pertaining to corporation accounting.

The third provision of the twentieth section which should be recognized in order to understand its purpose and its character is, that the Commission is authorized to "employ special agents or examiners, who shall have authority ... to inspect and examine any and all accounts, records, and memoranda kept” by carriers subject to the jurisdiction of the act. The influence of an efficient board of special examiners upon the manner in which railway operations are carried on is essentially different from that of an examination made when books and records are brought before the Commission in the trial of a cause. The former tends to prevent the rise of those mischiefs which are likely to show themselves in view of the peculiar temptations to which executive and traffic officials are exposed; the latter, while doubtless acting in some measure as a deterrent, does not hold in view as its chief aim the establishment of conditions in which the peculiar temptations incident to railway management shall no longer exist. By this contrast is made clear the chief significance of that portion of the act which authorizes the Commission to establish a uniform system of accounts and to appoint a board of special examiners in order to insure conformance on the part of the carriers with the prescribed rules of accounting.

It is evident, from the above cursory description, that the efficiency of the twentieth section of the Act to regulate Commerce is no longer confined to the general, tho somewhat indefinite, influence of publicity. It is of course true that the influence exerted by publicity through the annual, the monthly, and the special reports issued by the Division of Statistics and Accounts of the Commission, as well as by the fact that the annual reports of carriers are, by law, made “public records," will be greatly strengthened by the promulgation of a standard system of accounting. But the real significance of the amendment of 1906 is much more comprehensive. In any case the efficiency of that section, indeed the test of the work of the Commission under that section, centers in the character of the accounts prescribed, and in the correctness of the principles on which such accounts are based. I may therefore be pardoned for dwelling at some length upon the character of these accounts, and I trust it will not be regarded as a reflection upon your familiarity with the science of accounting if I refrain, as far as possible, from making use of technical language.

Railway accounts, roughly speaking, are divided into two general classes,-operating accounts and capital accounts. The former have to do with the moneys received for services rendered and the costs of rendering


those services; the latter have to do with receipts from investments, payments upon capital, and all other debit and credit entries which pertain to the corporation as a business or financial entity. Railway accounting covers also a large number of analytical statements, inventories, lists of physical and corporate assets and liabilities, and secondary or supporting accounts, a consideration of which, however, must be excluded from this cursory review.

As there are two general groups of accounts, so there are two figures, the correct determination of which may be accepted as the test of a sound system of accounting, or of the accuracy with which accounting rules are applied: namely, the net revenue from operation with which the operating accounts are closed, and the accumulated surplus, the determination of which is the purpose of the comparison between corporation assets and corporation liabilities as shown upon the balance sheet. If these two figures are guaranteed, and if at the same time the details of the two accounts are so drawn as to meet the requirements of operating officers in their effort to obtain efficiency and economy, the fundamental aims of accounting rules may be said to have been attained.

The work of formulating a uniform system of accounts for all of the transportation agencies was begun with the operating accounts of steam railways. These operating accounts cover six classifications, and it should be held in mind that the rules of accounting which, under the law, become binding upon the carriers are expressed in the text explanatory of the primary accounts for which these classifications provide.

The six classifications referred to are as follows:
Classification of Operating Expenses.
Classification of Operating Revenues.
Classification of Road and Equipment Expenditures.

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Classification of Locomotive-miles, Train-miles, and Car-miles.

Classification of Outside Operations.
Classification of Additions and Betterments.

Of the above classifications, the first four—that is to say, Operating Expenses, Operating Revenues, Road and Equipment Expenditures, and Locomotive, Car, and Train Miles-were issued under orders of the Commission dated June 3, 1907: the others were issued as circulars of instruction, and, in the main, have been followed by the carriers. These are now in process of revision, and will shortly be issued under formal order to take effect July 1, 1908.

In addition to these operating accounts, a tentative form for an income statement has also been issued, as well as for that of a balance sheet. It has been the policy of the Commission to draw out first a scheme of accounting for steam carriers, and then to modify these accounts so far as may be necessary to meet the requirements of other transportation agencies. It is thus evident that the fundamental principles of accounting will be found in the accounts prescribed for steam carriers.

A complete presentation of the subject would require at this point mention of the joint facilities accounts, of the grouping of primary accounts, of minor adjustments designed to make these accounts respond to the requirements of executive officials, and many other similar matters technical in character, but these may be passed over as relatively less important than the consideration of the more fundamental principles. The accounting scheme approved thus far by the Commission may be said to rest upon four fundamental principles. These are:

1 Use was made at this point in the address of a letter addressed to the chairman of the Committee on Finance of the United States Senate relative to the use of railway bonds as securities from National Banks. See Senate Document 212, 60th Congress, 1st Session.

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