J. L. Boockholdt ASSISTANT PROFESSOR UNIVERSITY OF HOUSTON
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 rail-road asset valuation. The article presents some legal reasons for the early use of depreciation and continues with specific illustrations of railroad financial state-ments in the 1840s. The article concludes by stating that many of the basic con-cepts of accounting theory such as disclosure, matching measurement of cash flow had origins in railroad accounting.
The first steam driven locomotive started operating in England during the year 1830, and in the same year was introduced to the United States. Thus a study of railroad accounting practices should begin with information from the decade of the 1830's. The evolution of railroad accounting is traced to 1926, the year in which the Inter-state Commerce Commission began to stipulate railroad deprecia-tion policies.
The primary concentration of this study is on the nineteenth cen-tury, since it was during the industrial revolution that the require-ments for reporting on the custodianship of corporate management to absentee owners first became recognized. During the twentieth century, railroad accounting practices were primarily dictated by regulatory agencies and as a result have diverged from the account-ing principles which are generally accepted for other corporate enterprises.
The central thesis of this paper is that the major influence of rail-road accounting related to the need for adequate disclosure of the economic health of the business enterprise. We can learn from the experiences of the railroads as to the contemporary discussions and debates regarding the proper means to achieve disclosure. Because the railroads were some of the first companies to require major quantities of long-lived fixed assets, one of the first problems faced by early railway accountants concerned that of asset valuation. Due to the major investments required, the railroads were also the first companies to require massive amounts of outside capital; thus their
* Based on Working Paper No. 31, The Academy of Accounting Historians.