The paper provides a broad discussion of the topic “accruals”. Though much of what is said is familiar from the literature on accruals, the paper tries to develop concepts and show how theses forge tight links across a variety of themes. The starting point of the analysis concerns the...

Sloan (1996), Richardson et al. (2005, 2006) examine how firms' accruals relate to subsequent financial performance. They identify a negative correlation and attribute it to accruals lack of reliability. This paper considers the issue from a different starting point: we forecast sales and...

A claim is commonly made that cash and accrual accounting methods for valuing equities must always yield equivalent valuations. A recent paper by Lundholm and O'Keefe (Contemporary Accounting Research, Summer, 2001), for example, claims that, because of this equivalence, there is nothing to be...

Considerable research has been devoted to the evaluation of accrual accounting, with an accrual-cash flow relation at the center of the investigation. However, much of the research is based on misconceptions. First, accruals are defined as changes in balance sheet items, but these are not the...

Under accrual accounting, earnings add to shareholders' equity. Cash flow generated by a business has no effect on the book value of shareholders' equity but reduces the book value of net assets employed in business operations. In short, accrual accounting rules prescribe that earnings add to...