Articulation Based Accruals

64 Pages Posted: 24 Jan 2014 Last revised: 18 Dec 2016

See all articles by Ryan Casey

Ryan Casey

University of Denver

Feng Gao

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Michael Kirschenheiter

College of Business Administration University of Illinois at Chicago

Siyi Li

California State University, Fullerton - Department of Accounting

Shail Pandit

University of Illinois at Chicago

Date Written: December 10, 2016

Abstract

We build an articulating financial statements model in which the beginning and ending balance sheet amounts are explicitly linked to accruals. We distinguish accruals based on the source financial statement of the accruals, either the cash flow statement, balance sheet, or statement of owners’ equity. We then examine how the accrual-generating source affects the relations between accruals and future earnings and stock returns. While prior studies document a negative association between accruals and future earnings and returns, we find accruals relating to the current operating section of the balance sheet are positively associated with future earnings. Further, accruals originating from net financial asset via the statement of owners’ equity are positively associated with future returns. We also show that equity investment and discontinued asset accruals differ from operating asset accruals in their association with future earnings.

Keywords: Financing accruals; operating accruals; financial statement articulation

Suggested Citation

Casey, Ryan J. and Gao, Feng and Kirschenheiter, Michael and Li, Siyi and Pandit, Shailendra, Articulation Based Accruals (December 10, 2016). Review of Accounting Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2383537 or http://dx.doi.org/10.2139/ssrn.2383537

Ryan J. Casey

University of Denver ( email )

2101 South University
Boulevard, Suite 355
Denver, CO 80208-8921
United States
(303) 871-7695 (Phone)

Feng Gao

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

Janice H. Levin Bldg., Room 121
94 Rockafeller Road
Piscataway, NJ 08854-8054
United States

Michael Kirschenheiter (Contact Author)

College of Business Administration University of Illinois at Chicago ( email )

601 South Morgan Street
11th Floor
Chicago, IL 60607
United States
312.996-2284 (Phone)
312.996-4520 (Fax)

Siyi Li

California State University, Fullerton - Department of Accounting ( email )

P.O. Box 34080
Fullerton, CA 92834-6848
United States

Shailendra Pandit

University of Illinois at Chicago ( email )

601 South Morgan Street
University Hall, Room 2303
Chicago, IL 60607
United States
(312) 355-1331 (Phone)
(312) 996-4520 (Fax)

HOME PAGE: http://business.uic.edu/faculty/shailendra-shail-pandit

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