On The Development Trend Of Accrual Basis Accounting

The financial accounting model based on accrual basis has made important contributions to economic development in the past decades.

With the development of the world economy and the continuous progress of society, the economic activities of enterprises are becoming more and more complex, and the means of investment and financing are increasingly diversified, and new economic businesses emerge one after another.

Moreover, as the market competition intensifies and the uncertainty of business activities increases, users of accounting information require enterprises to provide more accounting information, especially information about the expected cash flow of enterprises.

All these new changes have challenged the accrual accounting mode.

This article will analyze the limitations of accrual basis accounting, and explore the development trend of accrual accounting combining with the new development in the field of financial accounting practice.

Limitations and challenges of accrual basis accounting (accrual accounting). Accrual basis is the basis of accounting recognition in the past. Accrual accounting is difficult to provide future accounting information.

Accrual basis is only to confirm pactions or events. Accrual refers to the fact that rights and responsibilities have already occurred and are not going to happen, which excludes the recognition of future pactions and events.

Moreover, the historical cost principle related to accrual basis is also oriented to the past. It is difficult to confirm the accrual basis in the business which is difficult to use historical cost to measure reasonably and reliably, which limits the confirmation scope of accrual basis.

When accounting information users pay more and more attention to future cash flow information, accrual accounting will not be able to meet the needs of information users for future accounting information.

For accounting treatment of financial instruments, because financial instruments only produce contract rights or obligations, and pactions or events have not yet occurred, it is impossible to determine its historical cost. Accrual accounting can not be recognized and processed and reported.

Because of the constraints of various factors, the accrual basis system can not and can not be fully implemented for certain accounting recognition procedures. (two)

Business pactions or events are reflected in the financial accounting system, and confirmation is a prerequisite, but not the only condition.

As an accounting factor, only when its related future economic interests can flow into or out of the enterprise, and the element should have measurable attributes to reliably measure, it can enter the accounting information system to record and report.

Accrual basis is complementary to historical cost. If a paction or item can not be reliably measured with historical cost, the accrual accounting will not be able to confirm it.

Restricted by objective conditions, in some respects, the accrual basis can not be used effectively, for example, interest income and interest expense happen in theory over time, and enterprises can not always confirm the increased interest income and interest expense at all times.

This shows that the application of accrual basis is relative.

In addition, enterprises avoid the risk of consideration, and do not confirm the cost of matching principle.

When the market price is lower than the historical cost, when the market price is lower than the historical cost, the loss of holding assets is often recognized. This accounting treatment does not conform to the accrual basis principle. However, such handling can reduce the business risk of enterprises, so most accounting standards of the state agree with this accounting treatment.

Because the accrual basis principle can not be used or can not be used effectively, the use of accrual basis for financial accounting has been shaken, and people have questioned the development trend of accrual accounting.

The development trend of accrual accounting is two. The twenty-first Century is a century of knowledge economy. The rapid development of hi-tech and information industry will bring greater impact to the economy and society. This will make great changes in the development environment of enterprises in the future, which will lead to the diversification and complexity of business activities and the increasing risk of enterprise operation.

Under such circumstances, information users put forward higher requirements for financial accounting.

For changes in the assets and interests caused by some new pactions or events, they require disclosure in the financial statements as far as possible.

In addition to providing financial information about the company.

In addition to historical information such as operating results and cash flow, they also require financial accounting to provide useful future information for decision-making.

In addition, in order to meet the needs of fierce market competition, the managers of enterprises require financial accountants to flexibly apply accounting policies to ensure that enterprises have better financial flexibility and enable enterprises to develop healthily. Facing the new problems of business activities and higher demands of information users, how will accrual accounting develop in the coming century?

The accrual basis still dominates the financial accounting recognition, and the accrual basis accounting model will still exist.

The time base of financial accounting confirmation is accrual basis, cash basis and cash flow system.

The first two recognition bases are all in the past. The time base of cash flow can include the future. It confirms the accounting elements by the time of the cash flow or cash outflow of the enterprise now or expected.

1, the basic mode of traditional financial accounting determines that cash flow system can not become the dominant recognition basis in the future.

Financial accounting is an economic information system, processing objects are financial data generated by pactions or events that have occurred or completed.

The accrual basis is the combination of the measurement attributes of the past recognition and the historical cost.

This model has an irreplaceable advantage in providing historical information.

Under the situation that historical information occupies a dominant position and historical cost is not replaced, cash flow system will not become the dominant confirmation basis of financial accounting in the future.

2, accrual basis is more conducive to enterprises to provide historical accounting information than cash basis.

Comparing the accrual basis with the cash basis, the former is more conducive to providing the enterprise accounting information system with information about the financial position and operating results of the enterprise.

Accrual basis is the premise of correctly and reasonably defining the income and expenses of an enterprise during an accounting period and the results of enterprise operation in accordance with the "income and expense view" generally recognized by all countries.

The confirmation of income should conform to the principle of realization, and the confirmation of expenses should conform to the principle of proportioning.

These two principles are based on accrual basis.

At the same time, it is also necessary to point out that accounting for receipts and payments can not be recognized or traded in financial statements for cash free pactions or pactions, such as barter pactions. This makes many information that has a great impact on decision-making can not be provided to users of information.

Moreover, the cash basis is a recognition base for the past. It is also built on the pactions or events that have occurred. For the current and future periods, the information on the future cash flow of the information users is more and more concerned.

Therefore, no matter at present or in the future, the cash basis can not replace the accrual basis and become the dominant confirmation basis of financial accounting.

According to the above analysis, accrual accounting has an irreplaceable advantage in determining the operating results of enterprises, reflecting the financial situation of enterprises at a certain time, and it can also provide information on cash flow in a certain period of time.

In the future, historical information is still the main information provided by the financial accounting system, because enterprise history information is the reflection of an enterprise's previous operation, scale and speed of development, and is the starting point for the future development of enterprises. It is very important for the prediction, control and decision-making of enterprises, as well as the reporting of accountability.

Therefore, the accrual basis of the accrual basis determines that it is still the dominant basis for future financial accounting.

On the other hand, the historical cost that complements the accrual basis still has strong vitality in the future. Although the historical cost of inflation has been criticized, the reliability, verifiability and simplicity of historical cost will make it still play an important role in measurement.

In the case of historical cost is still important, the accrual basis will still dominate in the foundation of financial accounting confirmation.

In the course of future development, it does not support, supplement and correct accrual basis in the future development of two.

1, information users' demand for cash flow information will form accrual accounting aided by cash flow system.

With the increasing complexity and diversification of business activities and increasing business risks, the stakeholders of enterprises require accounting information system to provide information that reflects future changes and forecasts as far as possible while providing historical information, so as to help decision-making.

The cash flow accounting can meet the requirements of information users through the combination of the current cost or fair value. For example, the revaluation of fixed assets in international accounting standards reflects the trend of cash flow system to provide supplementary information.

According to accrual accounting, fixed assets are accounted for at historical cost, and historical prices are maintained in the course of use. With the rapid development of economy and technology, especially in the case of large price changes, the current cost or fair value of fixed assets will be quite different from that of historical ones, thus forming unrealized losses or gains for enterprises.

Because these losses and gains have not been realized, accrual accounting is not recognized or reflected in the financial statements, and these information will have a greater impact on the business performance and financial position of the enterprise.

The cash flow accounting will confirm these gains or losses and bring them into the financial statements or disclose them in other financial reports. Although the reliability of measurement reliability has not been effectively solved in the original cash inflow or outflow, but with the development of information technology, there will be significant progress in solving these problems in the future.

In this way, accrual accounting aided by cash flow system can meet the needs of information users in the future. This is one of the trends of accrual accounting development.

2, in some future accounting areas, other recognition bases will supplement accrual accounting.

Recognition and measurement are closely related, and the accrual basis principle and historical cost principle are mutually compatible.

If a project cannot be reliably measured by historical cost, the accrual basis can not be applied.

In the accounting field where the accrual basis is difficult to apply, people will adopt other recognition bases, especially supplemented by the cash basis. This is also the trend of accrual accounting development in the future.

This trend can be seen from the accounting treatment of goodwill.

According to international practice, the current handling of goodwill is to confirm only purchased goodwill and do not recognize inherent goodwill.

This is because, considering the reliability of accounting information, the inherent goodwill is also lack of reliable measurement.

However, the acquisition and payment system can be used to confirm the purchased goodwill in the course of takeover.

Although the value of purchased goodwill is determined by the subjective estimation of the acquired and acquired enterprises, it is, after all, formed through the paction of property rights at a certain time point, and has measurable cash inflows or outflows, so it is verifiable.

Such a cash payment system can correctly and reasonably confirm purchased goodwill and provide relevant accounting information to meet the decision-making needs of stakeholders.

In the handling of goodwill and so on, it is a supplement to accrual basis, which can solve some accounting problems of accounting pactions which can not be reliably recognized and measured by accrual basis accounting system, so that financial accounting information can better satisfy users' requirements.

In the future accounting process, other accounting principles and practices will modify the accrual basis accounting in 3.

Because of the complexity of the economic environment and the diversity of business activities, the accounting entity is restricted by various subjective and objective factors. The accrual basis system can not be applied strictly in all aspects of accounting treatment, or it will adversely affect the operation of enterprises.

Whether it is now or in the future, accounting standards all over the world require that when accrual basis conflicts with other accounting principles or practices, it tends to other accounting principles and practices, that is, to amend the accrual basis through other accounting principles and practices.