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ACCRUAL ACCOUNTING AND CASH ACCOUNTING: RELATIVE MERITS OF DERIVED ACCOUNTING INDICATOR NUMBERS
Author(s) -
Belkaoui Ahmed
Publication year - 1983
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.1983.tb00430.x
Subject(s) - accrual , cash flow statement , accounting , revenue recognition , cash flow , balance sheet , income statement , economics , accounting standard , operating cash flow , liability , asset (computer security) , earnings response coefficient , financial accounting , earnings , econometrics , accounting information system , business , computer security , computer science
The purpose of this study was to evaluate the relative merits of performance indicators derived from either an income statement and a balance sheet both based on accrual accounting, or cash flow accounting. The balance sheet number showed lower variability and a higher persistency than the cash flow accounting and the income statement numbers. This phenomenon was attributed to an income smoothing distortion and a selective market response hypothesis. One implication for the standard setting bodies may be to favour an asset/liability view of earnings rather than either a revenue/expense or cash flow view.