Accrual Basis Accounting:Businesses Record Transactions as They Occur

Accrual Basis Accounting:

Businesses Record Transactions as They Occur

Abstract

The purpose of this paper is to summarize the effects of accuracy and reliability of accrued expenses for financial information provided to users based on academic information. I will evaluate several key factors that are involved in accruing for expenses and how accruals affect a company's financial statements. Included will be GAAP's matching principle and FASB guidance on accruals. Other sources examined will from several academic articles. The results indicate that accruing for expenses maintain the matching concept. Accruals help avoid deceptive income statements that could result from the timing of cash payments.

Table of Contents

Abstract …………………………………………………………………………………...2

Table of Contents …………………………………………………………………………3

Introduction …………………………………………………………………………….....4

Literature Review ………………………………………………………………….. …......5

Locating Financial Misstatements: Where to Look……………………………....5

Accounting for the Costs to treat Environmental Contamination…………………7

Coping with FASB Statement No. 106-- "Accounting for Post-retirement

Benefits Other Than Pensions…………………………………………………8

On the Implementation of Accrual Accounting: A Study of Conflict and Ambiguity……………………………………………………………………..8

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Figure 1

Depreciation Rules and the Relation between Marginal and Historical Cost…….9

The Role of Accruals in Asymmetrically Timely Gain and Loss Recognition…...9

On Matching Revenue with Expense……………………………………………10

Matching and the Changing Properties of Accounting over the Last 40 Years….10

Fuzzy Numbers…………………………………………………….…………….11

Accrual Accounting for Performance Evaluation………………………………..11

Analysis ………………………………………………………………………….12 Conclusion ...……………………………………………………………………12

References ……………………………………………………………………….13�

Accrual Basis Accounting: Should Businesses Record Transactions as They Occur

When an expense has been incurred while generating income, the expense is recognized. The expense needs to be recorded within the time period it has occurred, such as accruing for payroll and income taxes. These accruals also need to be accounted for within the periods they relate and are reported onto to financial statements accordingly.

The matching principle involves matching up the expenses to revenue. When this is done, expenses are not recorded until the related revenue is recorded; the GAAP...