What Is the Difference Between Accrual Basis and Cash Basis?

This article attempts to study whether the cash flow from operating activities (CFO) can provide users with useful information related to the value of the company in addition to profit, on the premise that profit information is available. Unlike most existing studies that focus on testing whether CFOs have incremental information content, this article establishes a complete framework for the usefulness research of CFOs, and draws some meaningful conclusions through theoretical analysis and empirical testing.

Research on the usefulness of cash flow information from operating activities

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This article attempts to study whether the cash flow from operating activities (CFO) can provide users with useful information related to the value of the company in addition to profit, on the premise that profit information is available. Unlike most existing studies that focus on testing whether CFOs have incremental information content, this article establishes a complete framework for the usefulness research of CFOs, and draws some meaningful conclusions through theoretical analysis and empirical testing.

Subtitle

Foreign title

Author of the paper

By Zhan Lei

tutor

Chen Xiaoyue guidance

major

Business Management

Degree level

PhD thesis

Degree-granting unit

Tsinghua University

Degree award time

2006

Key words

Business management accounting information cash flow corporate profit

Collection number

F275

Collection catalog ^[1]

This article attempts to study whether the cash flow from operating activities (CFO) can provide users with useful information related to the value of the company in addition to profit, on the premise that profit information is available. Unlike most existing studies that focus on testing whether CFOs have incremental information content, this article establishes a complete framework for the usefulness research of CFOs, and draws some meaningful conclusions through theoretical analysis and empirical testing. This paper summarizes the mathematical process of measuring the business activities of the accounting system, and compares the value correlation of the accounting information generated under the cash system and the accrual system based on the enterprise pricing model. Under the assumption that the accrual system is perfectly executed, the accounting profit under the accrual system has a stronger value correlation than the CFO under the cash system; however, this assumption does not hold in practice. Whether the accrual system uses future present value, Fair market price or historical cost measurement attributes all depend on predictions, estimates, accounting choices and professional judgments to varying degrees, inevitably bringing about technical errors and manipulation differences, making accruals in the process of adjusting cash flows to accounting profits May deviate from the economic essence of the enterprise and the intrinsic value of the enterprise. Therefore, CFO information under the cash system may have an incremental value correlation. In the empirical test of the data of China's A-share listed companies from 1998 to 2004, we found that the CFO has a significant incremental forecasting ability for future performance measured by profit and cash flow; meanwhile, it also has an increase in future losses and ST risks. Predictive capacity. Examination of the CFO incremental information content shows that around 2002 is a boundary. Before that, the CFO had no significant incremental information content. After that, the incremental information content was significant, reflecting the market's use of cash flow information. process. By grouping the samples, we studied the influencing factors of the CFO's incremental information content. The study found that loss-making companies, companies with relatively high profit volatility, the absolute value of accrued items in the profit composition, and Enterprises with a higher degree of control, companies with lower quality of credit sales income recognition and bad debt provisioning, companies that affect the current profit and loss through the provision of inventory depreciation, companies with higher liquidity risks, and long-term debt service risks Companies with higher CFO incremental information content. The theoretical analysis and empirical test results in this article provide some clues on how to use cash flow information of operating activities, and when and for which types of enterprises are more useful. ^[1]