Influence of Nineteenth and Early Twentieth Century Railroad Accounting on the Development of Modern Accounting Theory

Abstract

This article is concerned with the problems of nineteenth century railroad asset valuation. The article presents some legal reasons for the early use of depreciation and continues with specific illustrations of railroad financial statements in the 1840s. The article concludes by stating that many of the basic concepts of accounting theory such as disclosure, matching measurement of cash flow had origins in railroad accounting.

Investor protection under unregulated financial reporting

“…Railroads voluntarily supplied extensive interim earnings information and nonfinancial data beginning in the 19th century (Chandler, 1977, pp. 109-121;Boockholdt, 1978;Miranti, 1989;Sivakumar and Waymire, 2003). They also were subject to inspection by examiners of the Interstate Commerce Commission after 1906, and some chose therefore to forego purchase of an external audit (DeMond, 1951, pp.…”

Accounting History Research: Scope, Topics and Agenda

“…Finally, historical research also addressed how leading industries contributed to developing innovative accounting practices -e.g. railroads (Boockholdt, 1978;Previts & Samson, 2000).…”

The Effect of Regulation on Statement Disclosures in the 1915 Moody's Manuals

“…These laws gave states the ability to regulate railroad rates. The rates were based on return on invested capital assets [Boockholdt, 1978]. The United States Supreme Court upheld the power of states to regulate prices of firms that possessed the economic power to exploit customers in Munn vs. Illinois [1877] [Trebing, 1984].…”

“…As a result, both railroads and public utilities became regulated industries. Boockholdt [1978] notes that the use of these return on invested capital rate setting regulations coincides in time with the increased use of the retirement method of depreciation and a trend toward capitalizing rather than expensing new assets. While he did not empirically test this relationship, the correla- tion between a regulatory change and a change in accounting policies seems to have clearly existed.…”