Abstract This article focuses on the financial reporting of purchase contracts used to guarantee large investments. long-term contracts have become an important basis for the acquisition of production factors. Purchased power, capital equipment, and raw materials are examples of production factors which are now being contracted for on a long-term basis. Accounting principles underlying financial reporting to investors have, for the most part, been developed without regard for these sorts of contractual arrangements. A contract transaction, such as a long-term purchase contract or a lease, is usually not recorded in the accounts or reported in the body of the financial statements. Transactions must usually be accompanied by an "exchange" such as a payment of cash or transfer of other assets between the contracting parties before they are reflected in the financial statements. Hence, a rental payment or a payment on receipt of inventory is recorded and shown in the statements, but the fact that contract exists is not. The contract is usually reported only in footnotes to the statements.
Burns et al. (Tue,) studied this question.