Why or how did railroads create a greater need for accounting information?

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Why or how did railroads create a greater need for accounting information?

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Railroads provide an example of a more complex business than any that had existed until the 1840’s. The complexity created an even greater need for accounting information. Railroads developed special record keeping systems for transactions, such as cash collections, deposits and disbursements using a voucher system. Albert Fink also developed four categories of cost according to cost behavior, i.e., how the cost varied with output. The emphasis was on the cost per ton mile. American railroads were the first firms to have managers managing other managers, thus cost accounting became a tool for evaluating managers as well as internal processes (p.37). A useful measurement was the operating ratio, i.e., ratio of operating expenses to revenue. 16. Did the railroads use the matching concept? No. Railroad management did not use accounting to measure return on investment. They did not record depreciation and equipment stayed on the balance sheet at cost (p.37). Once the railroad was built, th

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