What Are the Best Tips for Accrual Basis Accounting?

Accrual basis is also called "receivable and payable system". It is a system that deals with economic business based on whether the expenses and income incurred in the current accounting period should be included in the current profit and loss. Any expenses incurred in the current period that should be compensated from the income in the current period, whether or not the monetary funds actually paid or unpaid in the current period, shall be treated as expenses in the current period; Revenue, whether or not monetary funds actually received or not received in the current period, shall be treated as income in the current period. The implementation of this system is conducive to correctly reflecting the cost level and profit and loss status of each period. ^[1]

Accrual basis

Accrual basis is a principle that determines the vesting period of income and expenses based on the occurrence of rights and responsibilities. Refers to all expenses that have been received, incurred or should be borne during the period, regardless of whether or not their payments are received or paid, are treated as income and expenses for the current period; conversely, all income and expenses that are not part of the current period Even if the money is received or paid in the current period, it should not be treated as income and expenses in the current period. ^[2]

Accrual basis has its rationality when reflecting the operating performance of an enterprise, and almost completely replaces it

Comparison with cash-based system:

1. The calculated amounts of income and expenses are not exactly the same;

2. The accuracy of the calculated profit and loss figures varies;

3. Accounting is not exactly the same.

Differences from the cash payment system:

Accrual and

Practical Significance of Adopting Accrual System in Chinese Government Budget Accounting

With the establishment and development of China s socialist market economic system, the basis of the realization of the payment system has revealed several major shortcomings. It cannot comprehensively and accurately record and reflect the government's financial situation, and it is difficult to truly and accurately reflect the various government departments and administrative units The level of cost and efficiency of providing public goods and services. In the process of reform of China's budget accounting system, fiscal management reform and economic development, there is an objective necessity to adopt accrual basis.

I. Adopting accrual basis system will help to promote financial management reform and improve government financial management level.

First of all, the adoption of accrual basis is conducive to promoting and promoting the existing fiscal and budgetary management reforms. 1. Adopting accrual basis accounting can provide a more comprehensive technical platform for departmental budget reform. If the government accounting and financial reporting system based on accrual basis is combined with departmental budgets, it can provide more comprehensive and accurate information on departmental service costs and departmental financial conditions, and provide a more scientific basis for the preparation of departmental budgets. Refine the department budget and the department's financial performance evaluation to provide a basis for the department budget to play a greater role. 2. The scope and scale of China's government procurement is expanding year by year, and it is expanding from general commodity procurement and service procurement to engineering procurement. Because the purchase of large-scale projects often occurs from year to year, under the system of realizing collection and payment, those parts that have occurred but have not been paid in the current period may not be reflected, which may lead to problems such as unrealized budget funds. Adopting accrual basis can avoid the above problems and make more scientific and reasonable accounting of government procurement funds. 3. The implementation of the centralized treasury collection and payment system reduced funds in transit and idle waste, and the idle cash balance of the treasury account increased. Adopt accrual system, which can timely reflect and confirm the information of uncollected receivables and payable unpaid revenues and expenditures, provide timely and reliable information for strengthening government cash flow forecasting, help to improve the accuracy and forward-looking of forecasting, and help In order to improve the government's cash management level and promote the reform of the centralized treasury payment system.

Secondly, the adoption of accrual system can provide a technical basis for the establishment of a government performance evaluation system, and is conducive to promoting government public management reform. Establishing a government performance evaluation system is an important measure to promote the efficiency of government departments, and accurate public service cost information and government financial status information are necessary basic conditions for evaluating government performance. Accrual-based information more accurately and comprehensively reflects the cost of resources consumed by the government to provide products and services over a period of time than the cash-acquisition system. It is conducive to strengthening managers' responsibility for output and results, and is conducive to promoting comprehensive performance management reform.

Thirdly, the use of accrual basis can provide comprehensive information on government assets and is conducive to strengthening the management and supervision of state-owned assets. Government accounting adopts a cash-based payment system, which often confuses recurrent and capital expenditures. For intertemporal capital expenditures, the cash payment system is written off as an expense on the date of cash payment, so the budget statement does not include the use value and service life of such expenditures. This practice leads to distortion of information on the size and quantity of non-operating state-owned assets, and the management and supervision of these assets may also get out of control. At the same time, to some extent, it has also opened the door for misappropriation of budget funds. Adopting the accrual basis of accounting can better distinguish recurring and capital expenditures, effectively prevent assets from leaving the public's supervision once the purchase or construction is completed, and provide comprehensive information about government assets, which is conducive to strengthening non-business operations. Supervision and management of state-owned assets.

2. Adopting accrual basis is the need to establish an effective government financial reporting system.

Government financial conditions are important information necessary for the country to make major economic decisions, implement macro-controls, and examine government performance. Internationally, OECD countries have generally implemented a relatively complete government financial reporting system. Government financial reports are provided to parliaments every year, and financial report information approved by parliaments is available to the public. The government financial report is different from the government budget. The government budget reflects the cash flow of the budget revenue and expenditure for the current year. The government financial report not only reflects the budget revenue and expenditure, but also reflects the government's assets and liabilities; it not only reflects the implementation results of the current budget policy, but also reflects The cumulative financial effects of previous decisions are an important source of information for government decision-making and the public's understanding of government performance. Especially on the basis of accrual basis, the information quality of financial reports can be further improved, and the reflection on government assets and liabilities is more real and accurate.

At present, China does not implement a government financial reporting system, and some important financial information that is not directly related to budget revenue and expenditure has been ignored and omitted. For this government, the lack of comprehensive information on the government's financial situation can make fiscal and economic policy choices and budgeting inadequate. To the outside, budget accounting information is too simple, resulting in low transparency of the government's financial situation, which is not conducive to the supervision and management of the distribution and operation of government funds by the legislature and the public. This issue has received the attention of the government and academia, and the reform of the government accounting system and financial reporting system has been put on the government's agenda. Basic accounting issues are an important factor in government financial reporting systems, affecting the function of financial reporting and the achievement of financial reporting goals. For example, from the core statement of the government financial report, the balance sheet, it is a tool for continuous measurement of government assets and liabilities. Only a certain degree of accrual system is used to include long-term liabilities and long-term assets. In order to fully reflect the government's financial situation, operational capacity and financial performance. If the full collection and payment system is still adopted in the new government accounting system and financial reporting system, many financial management purposes cannot be achieved, and the functions of government financial reporting will also be very limited. Management requirements such as preventing financial risks and performance measurement of government departments cannot be met.

Third, the adoption of accrual system can fully reflect the government's debt situation, which is conducive to revealing and preventing fiscal risks.

The pay-as-you-go system only recognizes expenditures when the debts are actually settled with cash. It cannot reveal hidden liabilities formed by future commitments, guarantees, and other factors in advance, and the government's potential financial crisis will be covered up. On the basis of accrual basis, confirming and reflecting the government's commitment and debt status according to certain standards can correct the distortion of financial information to a certain extent, and can more truly reflect the government's debt status and the true financial status. By disclosing the potential expenditure pressure on the fiscal system, it is possible to reasonably formulate a repayment plan for the government's accumulated debt and prevent future contingencies from occurring.

China's budget law stipulates that the local government budget must maintain a balanced income and expenditure, and local governments have no right to issue debts. But in fact, many local governments have huge hidden debt problems. For example, some grassroots local governments have long owed corporate building materials and construction funds, workers' salaries and medical expenses. In the case of the realization of the payment system, these problems cannot be reflected in the government budget and financial statements, which will cause huge hidden dangers to future government operations and local economic development. If accrual system is adopted, it is possible to provide government debt information correctly, remind all parties to pay attention to financial risks, and take timely measures to reduce future troubles. It has also been proposed to give local governments creditor rights to make invisible debts public to facilitate risk control. If this reform is implemented, the accrual reform of government accounting will be even more needed. We believe that the central government's macroeconomic policy control and capital market supply-demand mechanism constraints are necessary prerequisites for local governments to exercise their rights to issue debt. Economic feasibility of issuing bonds in the capital market. Both aspects require local governments to provide financial information on an accrual basis. Otherwise, due to the aforementioned deficiencies in government accounting and financial information based on the cash-based system, the information on macro-control and capital markets will be severely asymmetric, which may result in greater fiscal and financial risks.

Fourth, the adoption of accrual system is conducive to improving the integrity of government accounting and financial information, and is conducive to scientific macroeconomic decision-making.

The government accounting and financial information generated on the basis of the realization of the payment and payment system emphasizes that the cash flow generated by the government revenue and expenditure in a certain year cannot comprehensively reflect the important information about the government's assets, liabilities and other commitments, and cannot provide the continuous ability to evaluate or encourage government behavior. Important information for long-term decision-making and enhanced management. Although accrual system is more complicated and tedious than method of collection and payment, it can truly and comprehensively reflect the actual disposable financial resources of financial departments and budget units, and better reflect the annual changes in assets and liabilities. Judging the long-term effects of current policies provides more comprehensive and comprehensive information, which is conducive to evaluating the sustainability of the policy and its impact on the fiscal economy, and provides more accurate and comprehensive information for government and leadership decisions. For macroeconomic management, this accounting basis is more in line with the government's long-term strategic goals and requirements, and is conducive to the sustainable and healthy development of the national economy.

Several Issues on the Application of Accrual Basis of Government Accounting in China

China is considering reforming the government accounting system. In the process of establishing a new government accounting system, the conversion of the accounting base is an issue that cannot be ignored. We should learn from the successful experiences of European and American countries, but we must also pay attention to the differences between our country and European and American countries. We must apply accrual system according to our national conditions and the needs of reform and development. We believe that the following issues should be considered in the conversion of the government's accounting base in China:

I. The transformation of government accounting base must meet the requirements of fiscal management and coordinate with fiscal management reform.

The accounting foundation itself is only a technical means, it is one of the necessary elements that constitute the government accounting system and government financial reporting system. However, the government accounting system and government financial reporting system are not simply accounting issues, but are part of the financial management system and even the entire public management system. Government accounting and financial information should be consistent with the requirements of financial management. If the quantity and quality of government accounting and financial information cannot meet the requirements of financial management, then the function of financial management will be lacking; on the contrary, if the provision of government accounting and financial information exceeds the needs of financial management, it will also cause excessive information. Burden, increase government operating costs, and reduce work efficiency (financial management here is a broader concept, not only limited to the management of the financial sector, but also includes the supervision and management of finance by legislative bodies and other government departments; not only budget execution 2. The management of the use of funds, including the decision on the allocation of public resources).

The conversion of government accounting base must consider the needs of budget preparation, daily management and audit supervision during budget operation. At the same time, China and Europe and the United States are different. As China's market economy system and related fiscal and political systems are still in the process of deepening reform and improvement, the choice and conversion of government accounting foundations must consider China's public management and financial management. The need for reform. The transformation of government accounting base must not only be coordinated with various existing reforms such as departmental budget reform, reform of the central treasury payment system, government procurement system reform, government expenditure performance evaluation, etc., but also fully consider future government cash management reforms, Multi-year rolling budget, government performance evaluation, and other reforms require government accounting technology.

Second, the transformation of government accounting foundation should study the needs of all parties in society facing government accounting and financial information.

The main users of our country's government accounting and financial information are firstly the financial management departments of governments at all levels, which are mainly used for the preparation and implementation of government budgets, and the supervision and management of government financial funds movements; secondly, macroeconomic decision-making and management departments, mainly It is used to formulate economic policies and conduct macroeconomic regulation and control; once again, it is the legislature and the audit department, which are used for the approval and supervision of government budget revenue and expenditure. These three aspects of user demand for government accounting and financial information have their own priorities and are interrelated. A careful study and analysis of the needs of various parties is a necessary step in selecting and determining the application model of the government's accounting accrual system in China.

Therefore, the transformation of the foundation of government accounting in China needs to study the needs of all parties in the society in the face of government accounting and financial information. In particular, it is necessary to study the needs of financial management and government accounting and financial information, and then analyze the needs at different levels in the economy. If feasible, determine the content of government accounting and financial information and related technical means that should be provided.

3. The application of accrual basis should be consistent with the reform of government accounting system and financial reporting system

The accounting foundation is a measurement standard. It cannot function independently of the overall accounting system. The application of accrual accounting has practical significance only under the framework of an effective government accounting and financial reporting system. First, in accordance with the requirements of a socialist market economy, a fundamental reform of the current budget accounting model should be carried out to implement a shift from budget accounting to government accounting. The current budget accounting model integrates total budget accounting and unit budget accounting on the system, and focuses on budget revenue and expenditure activities in terms of accounting content. If accrual system is adopted under this framework, the overall role will be greatly limited. , It is still difficult to achieve the purpose of fully reflecting the government's funding campaign and financial situation. Therefore, it is necessary to learn from the experience of developed countries and change the budget accounting system into two parts, non-profit organization accounting and government accounting, each performing its duties.

Second, we must establish a government financial reporting system and clarify financial reporting goals. From international experience, government financial reporting is a comprehensive and systematic accounting method that reflects the government's financial situation and a standardized way to disclose comprehensive government accounting information. A relatively complete government financial report includes information on cash flow, assets and liabilities, etc. Under the government financial reporting system, the role of accrual system can be more effectively exerted. The choice of accrual application model depends on the objectives of government financial reporting. During the development of government financial reporting systems in developed countries, the goals of financial reporting have generally gone through three stages of development: the first stage is mainly to reflect compliance with the use of budget funds; the second stage is mainly to meet the needs of fiscal management; The third stage is mainly to explain the government's fiduciary responsibilities. For example, the goal of the US government financial report is to explain fiduciary responsibilities. This goal requires the government to provide the use and possession of the entire economic resources of the government, so it must adopt a full accrual basis to provide accounting and financial information including all government long and short-term assets and liabilities and government fixed assets. To meet the requirements of this goal.

In China, fiscal management reform has just begun, and violations and corruption in fiscal fund management are still serious. At this stage, the goal of financial reporting should take into account the compliance of budget funds and the requirements of fiscal management, and use this as a basis Application model of accrual basis.

Third, establish standardized government accounting and financial reporting standards and systems. The accrual system can reflect the government's financial situation more comprehensively than the cash-based system, but if there are no standardized standards and institutional constraints, it will also be more prone to human control. Therefore, it is necessary to establish relatively complete and systematic government accounting and financial reporting standards and systems. This is the standard application of the accrual basis in China's government with many levels of government and many administrative units to ensure government accounting and financial reporting information. The authenticity and comparability are extremely important. The current study should focus on the guiding ideology, goals, and basic framework of government accounting and financial reporting standards and systems.

Selection of the application scope of accrual basis: It is recommended that a unified accrual basis be adopted in the accounting and financial reports of governments at all levels, and that the budget still retain the revenue and payment realization system.

China is a unitary country. Although local governments have their own budget and fiscal autonomy, the main economic systems and policies are unified. The consistency and comparability of accounting and financial information of governments at all levels is conducive to macroeconomic management and finance. management. Therefore, it is necessary for our central and local governments to implement a unified accounting basis.

In the political and economic decision-making process of most countries, the requirements for budget information are mainly the income and expenditure of the year, as is China. Coupled with the reflection and review of the compliance of budget funds, it will still be one of the important tasks of government accounting and financial reporting in China at this stage. The cash-based budget can better meet these basic requirements. Therefore, the accrual system can be adopted only in government accounting and financial reporting, and the cash-based system can be retained in the budget, which is beneficial to the simplification of information processing and the stability of the budget system. The shortcoming of the lack of long-term information in the cash-for-payment budget can be compensated by the preparation of a multi-year rolling budget. And from the experience of the United States, through certain reconciliation processing, accrual-based government accounting and financial reporting information and payment-realization budget information can be connected and coordinated without affecting their original functions. .

V. Selection of the degree of application of accrual basis: Adopting a modified accrual basis, depreciation of government fixed assets is not accrued in the first stage.

Many countries have adopted the accrual system while reforming according to their national conditions and the needs of financial management. They have retained a certain degree and scope of the realization of the payment and payment system, thus forming a variety of "modified accrual systems." mode. The most common form of modified accruals is to limit the scope of asset and liability recognition, such as: recognition of non-financial assets, but recognition of expenses for defense infrastructure and cultural assets when acquired or constructed; only short-term financial recognition Assets and liabilities; recognize all liabilities but exclude pension liabilities, etc. The reasons for limiting the scope are often due to technical difficulties in the recognition of these assets and liabilities, excessive measurement costs, or little impact on government management and policies.

Based on this article's views on the objectives of our government's financial reporting, we believe that the current government accounting and financial information in our country should mainly meet the needs to reflect the compliance of budget funds and financial management, as well as current measurement technology and cost constraints. Accrual basis. The recognition scope of assets and liabilities can include cash and financial resources, current liabilities and long-term liabilities. For example, the cost of repayment of the principal and interest of government bonds is recognized in installments according to the accrual principle. If the guarantee obligation of the secured loan and the borrowing credit are indeed bad debts, the account is accrued on an accrual basis to fully reveal the government's hidden debt and prevent financial risks. purpose. As for income, we can learn from the general international practice and adopt a method close to the realization system of payment and payment. Only part of the measurable negative income (subsidies) with government policy commitments is accrued.

Although the implementation of the depreciation system for fixed assets of government departments is conducive to better implementation of performance management and accurate assessment of the cost and efficiency of public services of the department, this requires the valuation of a large number of existing government fixed assets, whether technically There are still more difficulties in terms of workload and higher costs are needed. Therefore, we recommend that this approach is temporarily not implemented in the first stage of the reform of the government's accounting and financial reporting system in China, and this is left to be resolved later in the reform. .

China's endowment insurance and state-owned enterprises' assets and liabilities are different from those in the United States. Our government has a relatively high responsibility for endowment insurance, and China's state-owned enterprises are extremely large. Although from the perspective of the government's responsibility, it should be included in the scope of government accounting and financial reporting, and measured on an accrual basis. However, the technical difficulties and measurement costs are very high, and can also be left to be solved in other ways in the future. You can learn from the US experience and report this accounting information outside the government's balance sheet.

The conversion of the foundation of government accounting from payment to accrual system also requires certain supporting conditions. In addition to the reform of related systems, the two most important aspects are the training of government accounting practitioners and the development of government accounting software. Most of the existing government accounting practitioners in China do not know much about the accounting business processing method based on accrual basis. During the reform process, they must be carefully trained and improved in accordance with the relevant standards and systems of government accounting and financial reporting. Business quality. There are many kinds of budget accounting software in China. When the government accounting foundation is converted, new government accounting software development and other related software adjustments and updates must be carried out in a timely manner. In the new software development process, both the role of the market competition mechanism and the uniformity of basic standards must be ensured to facilitate the connection and operation of the national financial information system.

China's "Enterprise Accounting Standards" stipulates: "Accounting should be based on accrual basis." The accrual basis plays an important role in ensuring that the accounting truly reflects the financial status and operating results of the enterprise, but it cannot be made into a "principle" that should be adhered to under any circumstances. At times, accrual systems sometimes seem to be inadequate.

The main goal of accounting is to provide real information to the users of accounting information, and the use of accrual basis cannot meet the requirements of the main objective of accounting under any circumstances.

In order to make up for the shortcomings of the accrual system in China's accounting system, four conditions are given for the confirmation of sales revenue:

1. The enterprise has transferred the main risks and rewards in the ownership of the goods to the purchaser;

2. The company neither retains the right to continue management, which is usually associated with ownership, nor exercises control over the goods that have been sold;

3. Economic benefits related to the transaction can flow into the enterprise;

4. Relevant income and costs can be reliably measured.

The starting point specified above is good, but it brings great operational difficulties in accounting practice.

The accrual system is not in line with China's economic conditions. For a long time, Chinese enterprises have generally faced the problem of capital shortage, and many companies are operating in a downturn and are on the verge of bankruptcy. Although the state has used debt-to-equity swaps and other methods to enter these companies into the market, and even most of them have established a modern enterprise system, there are still quite a few companies with poor credit and low solvency. In this environment, requiring enterprises to recognize revenue on an accrual basis will generate a considerable amount of false income, which seriously affects the authenticity of accounting information, which will inevitably affect the correctness of national macro-decisions.

Therefore, based on China s economic environment, accrual and accrual systems should be allowed to co-exist. Accounting should follow the internationally accepted practice and use the cash-acquisition system to recognize revenue under the installment sales method. For general credit sales income and loans, Interest income, etc. is recognized on an accrual basis and, under specific conditions, a compatible payment and realization system is adopted.

What Are the Best Tips for Accrual Basis Accounting?

Accrual basis

IN OTHER LANGUAGES

RELATED ARTICLES

How can we help?