Research Lecture for Accounting (Introduction)

Accrual Accounting Process:
Part II
15.511 Corporate Accounting
Summer 2003



Professor S.P. Kothari
Sloan School of Management
Massachusetts Institute of Technology


June 14, 2003

1

, Agenda for Today

ƒ Continue with the accrual process
ƒ Intuition
ƒ Mechanics
ƒ Too many slides and a lot of details!
ƒ Some of these are for self-study and for
recitations


2

, Cash Flow Versus Accrual
Accounting
ƒ Cash flow accounting
ƒ Measures performance by comparing the cash inflows of a
certain time period to the cash outflows of that period (e.g.,
cash flow from operations).
ƒ Accrual accounting
ƒ Measures performance by comparing revenues (which are
recognized when the earning process is complete) with
expenses (which are recognized when assets are
consumed or liabilities are created).
ƒ Geared toward periodic performance measurement that is
not skewed by investment, financing, and long-horizon
operational activities 3

, Cash Flow Versus Accrual
Accounting

ƒ Accrual accounting
ƒ Based not only on cash transactions but also on
credit transactions, barter exchanges, changes in
prices, changes in form of assets or liabilities, and
other transactions.
ƒ Records events that have cash consequences for an
enterprise
ƒ But does not require a concurrent cash movement in
order to record a transaction.



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