Question

Accrual accounting matches revenue with expenses, however accruals can be used to manipulate income and expenses. In the Forbes Magazine article, “Cash Doesn’t Lie,” written by Daniel Fisher, the author discusses the use of negative accruals, changes to estimates and recognizing income before it is earned. Read the article and then:

a. Discuss the use of each of these three techniques and their effect on current and future earnings reporting.
b. How should changes of accounting estimates that significantly affect income be reported? Should they be regarded as a change in accounting principle?
c. Research revenue recognition and discuss the accounting rules violated that brought down the company Sunbeam.

PLEASE PROVIDE NEW DETAIL ANSWERS TO EACH QUESTION AND PLEASE NO HAND WRITTEN ANSWERS.

Answer 1

ACCRUAL ACCOUNTING :

Accrual accounting method revenue and expences when they are incurred. it is systamtic to record when the expence or revenue incurred. examples of accrual accounting is expences have been incurred but not be recorded in accounts, and revenue will be generated but not be recorded in accounts.

NEGATIVE ACCRUALS :

It means to spending more expences what they expect. in a company or in bad position to survive is to improve from the past regards. wil be need to maintain proper estimations relating to the organisation.

changes in estimates : in companies they have to maintain proper accurate records but in some cases of changes in accountings like accounting standards we need to change the principles and will be main properly as they are be required. The process of maintaing records accounts accuratly.

Recognizing income before it is earned :

Recognizing of income before it is earned is dangerous to accurate the maintaining the records, in this case we will recognize the will not be generated up to the income will recorded.

The changes of accounting estimates should be reported in the period of the change. Many of these changes should not be regarded as a change in accounting principle, but there are some that would require it. the accounting standes will helpful to changes if any will be formated as the principles of accounting standards. the accounting changes require full disclosure in the footnotes of the financial statements to describe the justification and financial effects of change. for example if a company follow a depreciation on straight line method company was to change the method to weighted average method, the company will follow the accounting principles.

Accounting Rules and principles state that revenue is to be recorded by a company when it has been earned. In the case of Sunbeam the revenue and expenses were not being recognized according to accounting rules and principles. generally revenue is recognised only when a specific events has been occured. the amount of revenue will be measurable. Under normal circumstances the accuracy will be maintained, the customer it will not be recorded as purchase but sunbeam will be recorded as a sales.