Accounting accrual basis and management of corporate profits
Governance is the act profit adjusted accounting profits of the enterprise management to achieve profit targets through accounting tool. Accounting accrual basis provides potential opportunities, first for the behavior of managers, while cash basis accounting help researchers "discover" behavior and the degree of adjustment their profitability.
Accounting accrual basis and cash basis accounting
Accrual basis of accounting is one of the basic accounting principles most dominant methods in specific accounting business accounting ( DN ) . Accordingly , all economic transactions involving assets , liabilities , equity sources , lists income and expenses are recognized at the time of the transaction , not concerned about the actual time of collection or spend money ( accounting Standards No. 01 , 2002) . Since the recognition of revenue and expense that affect the decision to report profits of enterprises in a period , the accrual basis of accounting is considered a key principle for determining the profitability of the company . Profit under the accrual basis is the difference between revenue and cost , since, in general, and financial statements are prepared on the particular BCKQKD accrual basis reflect fully ( or compliance requirements honesty ) of communication accounting services in and from that period , allowing the state property, capital of an enterprise fully rational . Moreover, because there is no coincidence between the output and sales proceeds into existence during the period and the difference between the cost and the amount recorded as expenses in the period , accounting accrual basis allows tracking transaction spans different periods , such as debts , liabilities , depreciation , reserve , ...
Besides these advantages , accounting accrual basis sometimes do not adhere to objective requirements in accounting . Recognition of income and expenses not rely on cash flow to the respective revenue or spending that time based on transactions , data on financial statement showing part subjective opinion of accountants . For example , the distribution of various types of costs or revenue recognition in accordance with the progress of construction activities represent actions ( invisible ) , subjective nature of accounting .
In contrast to accounting accrual basis , cash basis accounting application only allows the recording of transactions when such transactions denominated in money . If profits are determined by the monetary base , profit and cash flow from operating activities in a period will be equal. However, cash basis accounting is now only used to report cash flows ( especially cash flow statements are prepared under the direct method ) .
Cash basis of accounting has a prominent advantage is high when objective information in the financial statements . Receipts and expenditures on activities that are " visible " , the amount and date of collection, payment shall be determined precisely , does not depend on specific subjective desire of enterprise management .
The nature of these two accounting basis and pose a question : first, the profit reported under the accrual basis of whether or not the administrator DN adjusted profit in the period in order to achieve an item certain criteria , such companies want to reduce reported profits in 2008 , this shift profits through 2009 to save income tax for corporate income tax rate in 2009 decreased by 3 % compared to the previous one? Second, it identifies the ability to adjust the accounting profit of using cash basis accounting , because according to this basis of accounting , managers can not adjust the transaction affects profit profit ? The next content below will answer this question
The ability to adjust profit
Profit is the difference between revenue and cost , thus , the recognition of revenues and costs is crucial to report profits in a given period . Accounting regime applicable accounting rules that businesses must comply with the accrual basis . Economic accrual basis provides an opportunity for administrators to implement corrective actions to achieve a profit target that , because accounting regulations also provide many options for each type of transaction (for subjects ) related to revenue recognition and cost . Below is a synthesis of the plan can apply to " establish " profitable "behavior " of the enterprise management .
( 1 ) Selection method of accounting : accounting method choice affects the time of revenue recognition and expense ( and as a result affect the profit recorded time ) . Option one ( or several ) accounting method allowed earlier recognition of revenues and expenses recorded shifts later will increase the reported profit for the period and vice versa . In the accounting firms exist some methods that can be applied to revenue recognition , cost :
Revenue recognition : businesses can apply the percentage completion method to recognize revenue and operating expenses in providing services and construction contracts . This approach allows companies recorded revenues of greater or smaller in proportion to the actual progress of the estimated contract valuation method for inventories ( average , before entering - first out , enter then - export front , the names ) affect cost of sales recorded during the period , and thus , affect reported profit for the period , depreciation method selected fixed assets . Each method of depreciation ( straight line , use rate , declining balance adjustment ) have different depreciation costs . It should be noted , the scope of this choice is quite limited .
( 2 ) Applying the method of accounting : accounting regime also allows companies are allowed to use the accounting methods selected through recorded time costs . Administrators decided to shift later ( or recorded earlier) some sort of cost would reduce ( or increase ) the cost of the current year . The costs can shift time record include fire insurance costs , the value of tools, allocate more period instruments , overhaul cost of fixed assets , advertising expenses , expenses product warranty . These costs can be recorded in the year incurred or discrimination for some period ( based on the matching principle ) .
( 3 ) Select the time of application of accounting methods and estimates of expenses , revenue : Enterprise Administrator can choose when and how to record the events related to the target profit profit for justice. For example , the timing and level of redundancy required to make an inventory of securities and doubtful ; moment of this provision is reversed or wiped out and the reversal . Enterprises can also estimates ( accruals ) as some costs for product warranty costs , warranty costs and construction works , estimated completion rate construction contracts and service providers to record sales revenues and costs , estimated interest rate implicit lease property for rent capitalization in a financial contract . Estimated useful life of the assets can be made to adjust the depreciation expense ( although not large scope ) .
( 4 ) Select the time of investment or disposal of fixed assets : Choose the time of purchase or disposal or sale of fixed assets also affect accounting profits . Enterprise administrators can decide when and extent of advertising costs , repair costs , upgrade fixed asset write-offs . Administrators can also determine the timing of disposals of fixed assets sold to accelerate or slow down the recognition of profits or losses other activities . To speed up or slow down the shipment to the customer at the time near the end of the year can also affect the profitability indicators in the report period.
The above scheme can be applied to adjust the aggregate profits of one or several accounting periods . Volatility profit depends on the permitted limit ( or the less flexible ) method of accounting. On the other hand , the correction ( increase or decrease ) profit can not be limited by adjusting revenue and reduce costs in one ( or several ) in this period will reduce costs and increase revenue in a few up next after that ( since then , the average number of the total adjusted profit in a finite period of time , usually three years , must be 0 )
According ASSETS . PHUONG NGUYEN COMPANY - Journal of Accounting 77