An archival investigation of a late 19th century accounting information system: The use of decision aids in the American printing industry

Accounting Historians Journal, The, Jun 2001 by Daniels, Roger B, Beeler, Jesse

Abstract: This study investigates management's use of decision aids within the context of an accounting information system of a late 19th century American printing firm. Our findings suggest that the use of decision aids by management transformed traditional accounting techniques and the cost accounting system into an intricate accounting information system by 1880. These decision aids allowed managers to manipulate accounting information to support decisions involving pricing, cost allocation and estimation, profitability assessment, management of receivables, and inventory control. The findings shed new light on the early work of Alexander Hamilton Church on the issue of idle time accounting and raises questions about the uniform costing movement in the American printing industry.

The press, indeed, was the dynamic force of the 1820's, setting the pace of political change in all the advanced societies. It was associated with the latest technology, a process begun in 1813 when John Walter of the London Times bought the first two double presses worked by steam.

Paul Johnson

The Birth of the Modern [1991 ]

INTRODUCTION

Extant historical research has examined accounting information systems within the printing industry [DeRoover, 1932; Edler, 1937; Garner, 1954; Daniels and Plunkett, 1994; Walker and Mitchell, 1996]. These studies provide insights into the emergence of relatively sophisticated accounting systems within that industry by the 16th century, the evolution of these systems during the industrial revolution, and the use of such systems to support price collusion and control labor costs durine the early Dart of the 20th century.

This paper expands the work of Daniels and Plunkett [1994] by examining specific managerial decision aids inherent in the accounting information system of the American printing firm, Walker Evans & Cogswell (WE&C) during the late 19th century. The present study provides evidence that WE&C used relatively sophisticated accounting-based decision aids to facilitate decision making. To date, no empirical study has addressed the use of such decision aids within the context of an accounting information system for the printing industry during this period.

19TH CENTURY ACCOUNTING SYSTEMS

The notion of accounting as an information system emerged as a logical result of the industrial revolution. Littleton [1933, p. 320] implied that the advent of the factory system and the inherent issues of mass production resulted in accounting phenomena being transformed into an intricate system to manage and control the firm:

... when the factory system began to displace the domestic system, production fell under the direction of enterprisers who paid wages, bought materials and supervised the process of producing goods for profit ... They had a motive for records, therefore, which the family or the solitary producer had not. The latter, making no money outlay for wages, counted his return (above materials) as his own wage; the former could not gage his degree of success or intelligently set his prices without some more or less systematic apposition of his returns and his several outlays.

Sophisticated cost accounting systems developed across industries during the 19th century. Chandler [1977] examined the emergence of such systems among railroads. These early systems allowed for the management and control of geographically dispersed and capital-intensive operations. Railroads were among the first entities to produce detailed information concerning returns on invested capital. By the early 1900's uniform systems of accounting had emerged in that industry. The use of cost accounting information in the railroad industry to assess managerial performance through the use of an operating ratio was studied by Johnson and Kaplan [ 1987].

The accounting records of Lyman Mills provide evidence that elaborate cost accounting records were maintained to support management's estimation of product costs during the period [Porter, 1980]. Tyson [1988, 1992] found that 19th century cost accounting systems in conjunction with a managerial component supported a broad scope of decisions in the manufacturing and textile industries.

Fleischman and Tyson [1998, p. 92] examined managerial decision-making and control as the primary use of accounting information during the industrial revolution in the United States and the United Kingdom. Their study highlighted the inherent problems and criticisms of traditional standard costing systems. They concluded:

The use of predetermined, norm-based standard costs has come under fire recently for not providing appropriate strategic signals in an era of global competition, continuous improvement, and perpetual cost reduction. In response, many companies appear to have abandoned the use of standard costing for control purposes. This is seen as the beginning of an evolution back to earlier days when standards were deployed primarily for decision-making purposes.

Garke and Fells [1878, p. 3] described the inherent relationship of the factory system and systems of regulating the intricate affairs pertaining to a factory. Their work identified management's need for the accurate and detailed information necessary to control raw materials and wage expense, and cost estimation including the allocation of overhead to production. The inherent relationship of accounting and the human element is described in the following excerpt from the 1878 edition of Factory Accounts [pp. 6-71: