Historical influences on modern cost accounting practices.

King, Darwin L. ; Premo, Kathleen M. ; Case, Carl J. 等

INTRODUCTION

Modern business firms utilize a variety of cost accounting practices in an effort to manage expenditures and maximize profits. The origin of many of these can be traced to cost related principles taught by military institutions. This paper will first review the development of cost accounting prior to the Civil War. Cost accounting principles and practices developed rapidly during the early 1800s. Prior to that date, very little effort was made by business owners to classify and manage various costs. The bookkeeping principles introduced by Pacioli in 1494 were little changed until the turn of the nineteenth century.

The second portion of this paper contains the major theme of this paper. It is the importance of the cost accounting practices used by the U.S. Army during the Civil War. These practices were quite revolutionary for the period and allowed the army to accurately classify and manage expenditures. Instructors at West Point were some of the leaders in the analysis and management of expenditures. They developed an accounting system that identified and classified all costs related to "men and materials." Since the cost of the war was so enormous, the United States Government required adequate cost accounting from all military units of all expenditures for payroll, materials and supplies, food products, hired workers, and all other military costs. Without proper cost identification, classification, and management, the Union Army would not have succeeded in its war efforts. Seven cost related reports are included in the appendix and reviewed in this paper.

The final portion of this paper reviews the importance of Civil War era cost accounting practices on modern procedures. These early practices have continued to be beneficial today in the effort to identify, classify, and manage costs. The cost accounting contributions of the military during the early to mid-eighteenth century have provided a theoretical basis for the accounting systems of today. Modern business firms continue to refine these principles in an effort to operate in a more efficient manner.

EARLY COST ACCOUNTING HISTORY

Prior to 1800, there was minimal interest in the process of identifying and managing costs. Accounting texts published in the United States in the late 1700s utilized the concepts of double entry bookkeeping that were originally published by Pacioli in his "Summa" text of 1494 (Previts & Merino, 20). Later, English textbooks by Oldcastle in 1543 and Peele in 1553 were, in effect, restatements of the principles introduced by Pacioli more that fifty years earlier.

English accounting texts of the late eighteenth century were distributed in Colonial America and served to educate many notable Americans including George Washington. Washington kept personal ledgers that contained cash accounts with debits on the left pages and credits on the right side pages (Cloyd, 88). In addition, Washington regularly utilized a text called "Bookkeeping Methodiz'd" written by Scotland's John Mair in 1736 in an effort to maintain control over various farming cash receipts and expense accounts. Washington operated a significant farming operation with revenues of about $400,000 from August 3, 1775 to September 1783 (Previts & Merino, 46).

According to John Palmer, Washington had significant cost identification problems and often used a "balancing entry" to balance a ledger for unaccounted funds (Palmer, 21). In an effort to balance his ledger on December 31, 1769, he entered a balancing entry for over 143,000 pounds to account for cash that was "lost, stolen, or paid away without charging." This clearly shows that costs were not managed properly during this period. Washington was unable to explain this huge shortage in cash other than to say that it was lost, stolen, or not recorded as an expense when the cash was paid.

Many authors believe that cost accounting, as we know it, did not come into existence until after 1800 (Previts & Merino, 56). Michael Chatfield feels that prior to 1885 neither accountants nor industrialists were interested in the identification and classification of organizational costs

(p.159). He feels that English and American cost accounting practices in 1870 were little different from Italian recordkeeping used some four hundred years earlier. There is modest information available on cost methodology during this period. A major reason for this is that cost identification and accumulation methods were considered industrial secrets. For that reason, little was published in an effort to minimize the likelihood that competitors would discover these practices.

Further, Fleischman and Parker believe that early cost techniques contained significant deficiencies including the lack of manufacturing costs that flowed through general ledger accounts, no integration of manufacturing costs with financial reporting, and the general lack of utilization of cost as a management control tool (p.24). It was not until the development of "scientific management" or "managerialism" that cost accounting principles as we know them today were created. Hoskin and Macve believe that the pioneers of managerialism were graduates of the U.S. Military Academy at West Point (1994, 5). Following the Civil War, these West Point educated officers joined both private and public sector organizations as managers. These men were perhaps some of the best educated men of the period, especially in the areas of engineering and managerial accounting, and they introduced these innovative principles in the firms they served.

In 1817, Colonel Sylvanus Thayer, often called the father of the Military Academy, was appointed Superintendent of West Point (http://www.usma.edu/history). Thayer instituted major changes in West Point operations by significantly upgrading academic standards, emphasizing military discipline, and stressing honorable and ethical conduct. Graduates of this period were largely responsible for the construction of a majority of the "nation's initial railway lines, bridges, harbors, and roads" (Ibid). Thayer reorganized West Point along "disciplinary" lines and required students to learn new scientific, mathematical, and engineering disciplines. He emphasized the line and staff organizational structure in his instructional process. Thayer also emphasized constant examinations and a numerical grading process.

Thayer's new "accountability" system included numerous required reports in addition to the numerically graded set of exams in an effort to raise the educational standards of the military academy (Hoskin & Macve, 1988, 45-46). This West Point "connection" was a breeding ground for knowledge and power experts who would go on to further develop a generalized accountability system--a system that ultimately impacted accounting practiced during the Civil War. Men schooled at West Point discovered a power to increase productivity and reduce costs and inserted that approach into a general disciplinary framework. (Hoskin & Macve, 1988, 38).

Graduates of West Point were often stationed at other military institutions such as the Springfield Armory. This entity was one of the most studied prototypes of a large factory, and it was considered to have one of the most sophisticated systems of accounting procedures and controls (Chandler, 1977). According to Hoskin and Macve, this was the result of accounting methods used by West Point trained managers after 1840 (1988, 1994). These managers were able to classify and manage costs and accomplish significant productivity gains at the armory.

Springfield Armory collected extensive product cost data in order to establish accurate target product prices. These price figures were compared to private contractor bids on government production jobs in an effort to reduce supplier overcharging (Fleischman & Tyson, 365). The War Department had to justify to the Congress the need for the armories, such as Springfield and Harpers Ferry. In order to accomplish this, it needed to demonstrate that the cost of providing arms at military armories was cheaper than obtaining them from private contractors. Under Regulations of the War Department, arms issued to soldiers had to be accounted for, and 'charged' to the responsible individual, if they were lost or damaged without good reason. A fixed price determined by unit cost of production figures was required to establish this unit cost figure (Hoskin and Macve, 1988, World Congress, 5). In the armory's copybook of Letters Sent in 1817, a 'List of prices of the component parts of the musket' was scheduled in detail (Hoskin and Macve, 1988, World Congress, 6). In addition, the armory also established unit labor costs for musket components in an effort to determine the total cost of a single musket.

In summary, many of the modern cost accounting practices originated from military education provided at West Point. Colonel Sylvanus Thayer, Supervisor from 1817 to 1833, was instrumental in the introduction of a new managerialism which allowed the United States to become the leader in the development of cost and management accounting principles (Hoskin and Macve, 1988, 37-38). His new managerialism not only emphasized discipline and ethical conduct but also increased the academic standards of the academy. In particular, Thayer's education emphasized cost identification, classification, and management. His efforts educated numerous officers who would later be employed in both the public and private sector and utilize these principles. The next portion of this paper reviews several cost accounting practices employed by the Union Army during the Civil War.

MILITARY COST ACCOUNTING PRACTICES

Cost accounting practices were utilized extensively by soldiers in two positions within the army. The job descriptions of company accounting clerks and regimental quartermasters included the identification and classification of numerous costs related to the "men and materials." These were the two major assets of the Union Army and required extensive recordkeeping. For example, the accounting for clothing costs alone was an enormous task. Each soldier, depending on his rank, was allowed a specific amount of clothing each year of his five- year enlistment. The cost accounting practices taught at West Point were incorporated into three instructional texts that are discussed in the following paragraphs.

Company accounting clerks and regimental quartermasters were required to prepare numerous reports on men and materials. A company included approximately one hundred men and a regiment normally included ten companies or about one thousand men. Therefore, the amount of cost identification, classification, and management was substantial. The clerks and quartermasters utilized three important reference texts in an effort to safeguard all assets and produce reports and statements that were both accurate and reliable.

These texts, published between 1861 and 1865, were utilized as instructional guides for proper accounting practice. The first book is the "Revised Regulations of the Army of the United States 1861". This document provided complete information on procedure and protocol, organizational structure, court-martials, and all reports required in order to maintain proper documentation of both human and physical resources (War Department, 1861). This text of nearly 600 pages provided detailed instructions concerning the reports that were required on a quarterly, monthly, weekly, and daily basis. It served as the chief instructional guide for required accounting practice and adequate reporting. In particular, the revised Army Regulations of 1861 provided accounting clerks and quartermasters with an effective and efficient system of cost accounting by clearly summarizing a variety of cost procedures.

The second important military cost accounting text was titled "The Company Clerk" (Kautz, 1865). In a circular issued to all company officers on June 28, 1863, this text was recommended for all officers in the volunteer service "to acquaint themselves with its very valuable and necessary information" (Ibid). The preface of this text states that "we have numerous textbooks that tell us what to do, but few, if any, tell us how to do it." This was the primary "how to" manual for the company accounting clerks. The book showed clerks how and when to make all returns, reports, rolls, and other papers, and what to do with them. In addition to cost accounting practices, this document also instructed clerks on proper internal control procedures.

The third instructional text of the period is "The Quartermaster's Guide" which was published in 1865. This included full instructions for preparing all reports and returns at the quartermaster's level (Case, 1865). Since the Quartermaster's department was responsible for all "men and materials," this text also included all related General Orders from May 1, 1861 to April 10, 1865. In particular, part two of this document (pp. 114-188) showed examples of all required forms (many were completed form examples). These three instructional texts provided clerks and quartermasters with the knowledge to accurately follow required cost accounting practices. The following paragraphs discuss several cost accounting practices employed during the Civil War.

The company accounting clerk position represented the most basic level of cost recordkeeping for the army (Kautz, Preface). The company accounting clerk was a position filled by a man who was either a non-commissioned officer or soldier who was known to have good penmanship and a capacity for keeping good reports and records. This basically meant that privates (soldiers), corporals, or sergeants (non-commissioned officers) were allowed to hold the position of company clerk. The company clerk did not receive any extra pay for the job but was excused from most other duties. His major duty was to produce adequate records and reports for the approximately one hundred men in the unit.

The clerk prepared, on a daily basis, a number of journal books. The clerk was required to maintain current and accurate records in nine separate books. The Morning Report Book, Sick Book, Rosters, Descriptive Book, Clothing Book, Order Book, Account Book of Company Fund, Register of Articles Issued to Soldiers, and Record Book of Target Practice were all the responsibility of the company clerk (Kautz, 9). Some of these books contained a wealth of qualitative data such as the physical characteristics of each soldier and his length of enlistment. A majority of the texts, however, involved the recording of cost data involving either "men or materials." In addition, the clerks were given four general cost accounting practices which had to be followed in order to properly identify and accumulate costs.

The first general cost accounting principle stated that a clerk had to get invoices for all property that he receives (Kautz, 11). Since there were continuous transfers of materials and supplies among military units, these invoices provided an audit trail that allowed for the tracing of all costs. A second principle was the requirement that the clerk get a receipt for all the property that he transfers to other units. This again allows for the cost audit trail to be maintained. Following a battle, units with extra ammunition and materials were required to transfer items to units with depleted inventories. A third cost principle was the requirement that clerks get "certificates" for property lost or destroyed. These "certificates" were normally signed by an officer of the company who verified that certain property was lost or destroyed in a battle. A soldier would not receive replacement property if a property authorized certificate was not submitted to regimental officers.

A fourth cost principle instructed clerks to not mix various property on the same form or report. This was to ensure that property from the Ordnance department, Quartermaster's Department, and Clothing, Camp and Garrison Equipage department was not combined on a single report. Each of these departments maintained cost records on the property that it provided. In order to properly trace costs from a department like Ordnance, the only property recorded on one of its reports was property that it inventoried and later allocated to units in the field.

Clerks were required to do a significant amount of cost accounting. One of the nine required books or journals was the Company Clothing Book. This document was used to account for all clothing issued to soldiers. For example, a corporal in a cavalry unit was allocated a total of $55.38 in his first year of service (Kautz, 21). The clothing book maintained a record page for every soldier as to the amount of clothing withdrawn during the year. If this corporal withdrew less than $55.38 of clothing the first year, he would receive the difference as additional pay at year end. However, if the solder withdrew more that this amount during the first year, the additional amount would be deducted from his pay. In order to calculate this over or under withdrawn clothing amount, the army provided the clerks with a standard cost table that listed the soldier's price for each article of clothing (Kautz, 18-19). One of the documents in the appendix of this paper pertains to soldier's clothing.

Standard costs and budgets were utilized extensively by both clerks and quartermasters. For example, when officers were transferred, the army paid for baggage costs up to a specified limit with the officer paying for any excess pounds. In the field, general officers were allowed 125 pounds of baggage while a captain was limited to 80 pounds (Regulations, 163). Travel costs were also calculated using a standard cost of ten cents per mile for officers (Regulations, 165). In addition, the number of miles allowed for reimbursement was based on the shortest mail route as found in the General Post-Office book. This process allowed the army to minimize travel costs which were paid using a very objectively determined methodology.

Standard costs were also employed in the calculation of forage and straw for each unit. For example, the forage ration per day for horses was fourteen pounds of hay and twelve pounds of oats, corn, or barley (Regulations, 166). Mules were allowed the same amount of hay per day but only nine pounds of grain. It appears that mules got more miles to the pound of grain than horses. Straw was allocated on a similar basis with twelve pounds of straw allowed for bedding for each man, servant, and company woman (Ibid). Horses were allowed one hundred pounds per month as bedding. Standard cost and quantity figures were very typical in the army's cost accounting system.

Standard quantity cost information was also utilized by the clerks and quartermasters when issuing stationery. Paper, for example, was allocated in units called quires. A quire is 25 sheets or one-twentieth of a ream (500 sheets). A commanding officer of a regiment with at least five companies was budgeted a specific allowance of stationery each quarter (Regulations, 167). These officers were allowed ten quires of writing paper, one quire of envelope paper, 40 quill pens, six ounces of sealing wax, and two pieces of office tape. In addition, each military unit office was allowed one inkstand, one rubber stamp, and as many lead-pencils as required up to a maximum of four per year. These very conservative allocations of materials aided the army in controlling costs. This is true today in many organizations where assets are viewed as scarce resources.

Standards were also set for the quarters of officers and the amount of wood allowed to heat the dwelling during the year. For example, a Colonel was allowed two rooms plus a kitchen for his barracks (Case, 19). These officers were also allocated one cord of wood per month for the period from May 1 to September 30. From October 1 to April 30, the standard allowance was four cords per month. This again shows that the army maintained an extensive system of asset management utilizing standard quantities for many types of military materials.

A major cost accounting matter involved the payment of wages to soldiers and officers. The Company Clerk text states that muster rolls are the most important papers that company accounting clerks prepare (Kautz, 39). These payroll reports were prepared on the last day of February, April, June, August, October, and December. Since wages was the most significant cost for the army, muster rolls received significant attention from accounting clerks and company officers who had to verify and approve them. The army's pay department produced a standard pay schedule that included monthly wages for each rank. For example, a major general earned a monthly wage of $220 compared to a private who earned $13 each month (Regulations, 348).

The muster rolls also included deductions for a variety of items. For example, higher officer ranks earned enough so that taxes were required to be withheld. Also, extra clothing requested by the soldiers over their standard allowance was withheld from the soldier's pay at its standard cost (as printed in the regulations). Additional withholdings were made for amounts owed to sutlers. Sutlers were merchants who traveled with the military units or were camped near each military post. Sutlers were not allowed to sell goods on credit terms to soldiers in excess of one-third of their monthly wage (Regulations, 37). These limitations added to the cost accounting work required of company accounting clerks and regimental quartermasters.

Army regulations contain many more examples of early cost accounting. For example, clerks and quartermasters completed a wide variety of budget reports. The army required each unit to budget all of its costs especially for extra-duty wages, civilians hired, supplies, armaments, food items, and any other monthly expenditure. In addition, regular inventory reports, as least on a monthly basis, were required in order to accurately calculate the amount of various inventories on hand. This included all horses, mules, cannons, other smaller munitions, wagons, ambulances, and all forms of small equipment and tents.

The cost accounting system used during the Civil War by company clerks and regimental quartermasters was amazingly efficient and effective, given the early date in our country's development. The next section of this paper reviews seven documents that are included in the appendix of this paper. These cost accounting reports and statements provide ample evidence that the army's accounting system was very advanced as a result of practices taught at West Point and other military institutions. These cost identification, classification, and management principles allowed the army to safeguard its assets and properly manage its expenditures. These practices continue to be utilized today in modern cost accounting systems.

EXAMPLES OF CIVIL WAR COST REPORTING

The appendix contains seven examples of cost records maintained by the army during the Civil War. Each of these forms was prepared to allow the army to properly classify and accumulate costs and maintain an accurate audit trail. The audit trail allowed each cost related to men or materials to be traced to the specific military unit incurring the cost. This is similar today to tracing various costs to the department that incurred them. The following paragraphs discuss the cost accounting implications of each document in the appendix.

The first report in the appendix was issued from army headquarters in Washington as General Order, No. 364 on November 12, 1863. This was reproduced in all of the reference manuals in order to provide clerks and quartermasters with information on the standard cost of each item of clothing. For example, a forage cap had a standard cost of 58 cents and one was allowed as part of the soldier's clothing allowance for each year of service. Flannel drawers had a standard cost of 90 cents and eleven were allowed in the five year clothing allowance (three the first year and two each following year). This important cost document allowed the army to maintain a record of the cost of all clothing withdrawn by each soldier. When the total amount of clothing withdrawn was compared to the clothing allowance for the year, any variance could be calculated. If withdrawn exceeded allowance, the soldier had a balance due to the army that was deducted from his pay (similar to taxes withheld today). If allowance exceeded withdrawn, the soldier had a receivable from the army for clothing not withdrawn which would be added to his pay. This was a critically important cost document for the calculation of clothing costs owed or due to each soldier.

The second document in the appendix is the yearly clothing allowance for soldiers in various units of the army. It appeared on page 21 of "The Company Clerk" and provided instructions to clerks regarding the amount of total clothing allowed per year (Kautz, 21). For example, a private in the artillery or infantry was allowed $194.85 of clothing over a five year enlistment period. This total allowance was based on the standard cost of the items of clothing as shown in the first document in the appendix and the standard quantity of annual clothing allowance. The standard quantity schedule found in the army regulations text clearly showed the number of hats, coats, trousers, shirts, socks, and undergarments allowed each year of enlistment (Regulations, 170). For example, thirteen pairs of trousers were allowed during the five year enlistment period with three pair the first, third, and fifth year and only two pair in the second and fourth years. Only one "great-coat" (heavy, winter) was allowed in the first year of the five year period. This explained the larger first year allowance (see document 2) that provided a private in the artillery with $52.03 of clothing in the first year but only $30.12 in the second year.

A review of this table reveals that yearly allowance average approximately 40 dollars per year. However, the first year allowance was the largest since the soldier received a complete set of clothing. As mentioned earlier, if the soldier withdrew more clothing than the allowance amount, the "excess" was charged to the man in the form of reduced pay on the next muster roll. Conversely, at the end of an enlistment year, any "under-withdrawn" clothing was added to the soldier's pay at the next muster roll. Cost accounting for clothing was a massive task for company clerks who had to record even the smallest clothing withdrawal in the company clothing book. The annual accounting for clothing resulted in either an "account payable owed by the soldier for excess clothing withdrawn or an account receivable owed to the soldier for any clothing under-withdrawn."

The third table in the appendix lists the amount of monthly wage and number of horses and servants allowed (Regulations, 348-9). This represents one-third of the payroll tables included in the regulations. The four pages not included list all lower ranks down to and including privates. The document in the appendix lists all top military ranks and those with positions that pay significantly higher premiums. For example, a paymaster earned $80 per month compared to a wage of only $13 for privates. Note that most of the ranks listed on document three in the appendix were allowed a number of horses and at least one servant. The paymaster was allowed four horses in wartime and two servants. The forage (grain and hay) for the horses and pay for the servants required additional cost calculations for the clerks and quartermasters.

The fourth document in the appendix is an actual Civil War report that shows the importance of budgeting by the army. In an effort to properly manage all allocated resources, the company clerks and regimental quartermasters prepared monthly budgets for the majority of their routine expenditures. This form was used to budget for fuel, forage, straw, stationery, hire of mechanics, laborers, and teamsters, pay of extra-duty men and wagon/forage masters, hire of clerks, guides, and escorts, and mileage paid to officers. This report was a budget for August 1862 for straw, hire of mechanics, blacksmiths, and carpenters, hire of teamsters (worked with horses), and the pay of extra-duty men. Note that the teamsters had not been paid for five months (since March). In wartime, it was common for soldiers to not receive pay for several months because the typical bimonthly muster roll could not be held due to extended combat periods. Budgeting continues to be a critical cost accounting process in firms today.

The fifth document relates to payment for special services performed by a soldier in addition to his normal duties. The army referred to this as extra-duty pay. This form shows that Colonel Milton S. Robinson was paid for court-martial service. With many soldiers violating regulations and even deserting, the army was forced to hold numerous court martials in order to discipline unruly solders. Colonel Robinson was paid $1.25 per day in extra-duty pay for 20 days that he served on the court-marital board. A colonel in the artillery or infantry earned $95 per month, so this additional $25 in a twenty day period was a significant pay increase. Notice that the army prepared a special form for recording this type of extra-duty (Report No. 18-Court Martial Service). Payroll accounting was significantly more difficult when special duty pay was added to the normal monthly salary of each soldier.

The sixth document in the appendix is a monthly quartermaster report that reports the sources and uses of cash for one month. Captain H.A. Hascall was the Assistant Quartermaster at Fort Wells in Port Royal, South Carolina. The right side of this report lists the quartermaster's beginning cash balance and all receipts of cash for the month of December 1861. Four small cash receipts and a major twenty thousand dollar check combined with a significant beginning balance of cash provided a total of $40,169.41 of cash to be accounted for. The left side of the report shows the uses of cash and the ending cash balance on hand. Summarizing the purchases and expenditures made during the month and the ending balance of cash on hand provides a figure for total cash accounted for of the same $40,169.41. This process is similar to preparing a bank reconciliation and ensuring that the balances per bank and books are equal. This report also has similarities to a modern cash flow statement that shows the organization's sources and uses of cash. Note that cash was accounted for at the bottom of the statement. Approximately $2,600 of the ending cash balance ($34,900) was on hand in an iron safe in Hascall's office, while the other roughly $32,300 was on deposit with the assistant treasurer in New York City. Accounting for cash was a monumental task for the thousands of various military units in the field during the Civil War.

The seventh and final report in the appendix is an excellent example of a final statement prepared when a soldier exited the military. The left side of the page shows the certificate prepared that describes the soldier and the reason for his leaving the military. In this case, Private Richard Hawkins from Rhode Island was discharged from service in February, 1862 due to his battle wounds. He received his last pay on December 31, 1861. With his discharge on February 11, 1862, he was owed one month and eleven days of wage at the rate of $13 per month. His final statement shows total pay of $17.76 plus wages for a 21 day period ($9.10) to return to his home in Rhode Island. The army assumed that he could travel the 420 miles to his home at the rate of 20 miles per day in the calculation of this 21 day period.

In addition, he was paid fifty cents per day ($10.50) for subsistence meals while on his journey home. The final addition to his pay ($18.38) was for clothing allowed but not drawn. This gave him a total wage credit of $55.74 from which was subtracted the value of clothing withdrawn during the last year ($39.06). The clothing withdrawn figure would have been found in the clothing book of his company. The final accounting figure showed that the army owed Private Hawkins a net total of $16.68. This process continues today when an employee leaves a firm and the "final payroll" must be calculated. Any amounts owed to the employee for wages and other benefits must be compared with any advances given to the worker.

These seven documents provide the reader with a better understanding of the amount of cost accounting that was conducted by the army during the Civil War. Cost accounting practices such as budgeting and the use of standard quantities and costs were typical in the army's system of recordkeeping. Army officers, upon their discharge from the army, took these essential practices with them as they entered both private and public organizations as management personnel.

INFLUENCES ON MODERN COST ACCOUNTING PRACTICES

Many of the cost and managerial accounting principles included in modern textbooks originated with West Point and Springfield Armory educational training. As discussed earlier, military cost accounting during the Civil War was significantly advanced when compared to the typical American business of the period. Mowen & Hansen define managerial accounting as the "providing of accounting information for a company's internal users" (Mowen & Hansen, 4). The army's accounting system allow it to record, classify, and interpret cost information in an effort to make good decisions concerning the purchase and distribution of all arms and supplies.

The "Company Clerk" was written in order to allow the army to maintain a record of the men and property that was "correct and perfect" (Kautz, 11). This training manual provided sufficient details on "how" to correctly prepare each report. It was written due to the "total neglect, in most of the regiments, to render the prescribed returns" (Kautz, 3). Kautz believed that this problem resulted from the lack of a book that described the detailed preparation of the required reports rather than the carelessness or neglect of duty on the part of the officers. This book summarized the majority of cost identification and control principles taught at West Point.

Other modern managerial accounting texts such as Crosson & Needles, Weygandt, Kimmel & Kieso, and Jiambalvo include a discussion of many of the cost accounting practices used by the army during the Civil War period. All four textbooks contain significant attention to the process of budgeting. Weygandt, Kimmel & Kieso in its 2008 edition includes two full chapters on budgetary planning and control. This process was at the heart of the army's accounting system during the war. Clerks and quartermasters budgeted payroll of the soldiers and hired men for their company or regiment. They also prepared budget requests for arms, munitions, food products, and supplies of all types. Differences between budgeted and actual costs were investigated by regimental officers and auditors in Washington. The concepts of favorable and unfavorable variances are also included in all current managerial accounting texts. The importance of utilizing a comprehensive budgeting system continues today.

All modern cost and managerial textbooks discuss the importance of internal reports in an effort to aid decision making of the owners and managers. Mowen & Hansen state that one of the three broad objectives of cost or managerial accounting is to provide information for internal decision making (Mowen & Hansen, 4). This was the philosophy of the army during the Civil War period as it desperately attempted to identify, manage, and allocate costs in an effort to maximize the effectiveness of those recourses. Battles could not be won by a company or regiment if they had any shortages of men or materials. Therefore, Washington required a complete set of invoices, receipts, and other source documents that provided an audit trail for the numerous reports on both men and materials.

Crosson & Needles emphasize the Institute of Management Accountants (IMA) definition of management or cost accounting that includes the words "to assure appropriate use of and accountability for its (the entity) resources" (Crosson & Needles, 4). All four accounting texts listed above emphasize the importance of maximizing the use of an organization's resources. The army's extensive cost accounting system required reports from company clerks and regimental quartermasters on a daily basis. These reports and statements allowed the officers of each company and regiment to maintain an internal control system. A major goal of this system was the safeguarding of all the army's assets. Without adequate cost reports, the army would have not been able to efficiently and effectively utilize each of its assets.

In summary, modern cost and management accounting texts include basic principles and practices that were introduced by graduates of West Point and other military institutions. Officers in the army had learned detailed cost identification, classification, and summary procedures in order to efficiently manage all expenditures. Modern businesses continue to be concerned with comprehensive budgeting and the use of standard costs. In addition, the calculation of favorable and unfavorable variances is critical to modern businesses in order to manage costs in an effort to improve profits. When accounting clerks and quartermasters prepared detailed budgets for the soldier's payroll and all types of materials and supplies, they were introducing a fundamental cost accounting practice. The same is true for the use of standard costs for monthly wages, clothing, arms and ammunition, food, and all other supplies. These practices allow modern business firms to manage costs and safeguard assets. Without the introduction of these important cost principles, American businesses would have operated much less efficiently.

CONCLUSION

This paper reviewed the cost accounting practices of the U.S. Army during the Civil War in an effort to emphasize its contribution to modern cost management. A number of authors including Previts and Merino and Hoskin and Macve concluded that cost accounting, as we know it, did not come into existence until after 1800. Cost accounting principles in use today can be traced back to graduates of the U.S. Military Academy at West Point. These graduates of West Point often went on to other military institutions such as the Springfield Armory. This new "managerialism" provided a huge advancement in cost accounting theory. It allowed the army to better control and manage all of its daily expenditures. This comprehensive cost accounting system allowed the army to accomplish two critical internal control goals. These include the safeguarding of all assets and the ability to operate efficiently and effectively. Without this knowledge, the war may have lasted substantially later than 1865.

As the West Point trained officers were discharged from army service following the war, many became employed in large business enterprises across the country. Commonly engaged in management positions, they continued to apply the same cost accounting principles and practices they had learned at the academy. These basic cost accounting practices provided for the development of modern cost identification, classification, and control. Comprehensive budgeting systems, the use of standard cost and quantity data, the calculation of cost variances, and similar expenditure related principles continue to be valuable to modern businesses. Business firms of the 21st century owe much to the pioneers of "managerialism" who taught these innovative cost management practices over 140 years ago.

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REFERENCES

Case, Theo.S. (1865). The Quartermaster's Guide. Saint Louis, MO: P.M. Pinkard Co.

Chandler, A.D. Jr. (1977). The Invisible Hand: The Managerial Revolution in American Business. Cambridge.

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