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June 15, 2026Issues in Accounting Education

Properties of Accrual Income, Cash Plow and Security Return: An Interpretive Exercise.

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Authors

PSPervin K. ShroffUniversity of Minnesota

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Implication

Interpretive exercise examines accrual income's benefits in predicting market returns using historical data.

Key Points

  • The exercise illustrates the benefits of accrual accounting, focusing on its relationship with cash flows and market returns.
  • Analyzed time-series data for Kmart Corporation from 1937 to 1991.
  • Compared characteristics of accrual income, operating cash flow, and market returns.
  • Investigated variance, correlation, and predictive abilities of accrual income versus cash flow.
  • Accrual income showed lower variance and higher correlation with market returns compared to operating cash flow.
  • Accrual income demonstrated higher predictive ability for returns than cash flow from operations.
  • Aggregated data over long periods indicated that accrual income, cash flow, and market returns captured the same total information.

Cite This Study

Pervin K. Shroff (1998) studied this question.

synapsesocial.com/papers/6a2f97e8a1cfeec490828e75https://doi.org/10.2308/iae-1428156
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Also Consider

Synapse has enriched 5 closely related papers on similar clinical questions. Consider them for comparative context:

  1. 1Extending the Usefulness of Accrual Accounting.1988
  2. 2The Incremental Information Content of Accrual Versus Cash Flows.1987
  3. 3Do Accruals Convey Information About Future Cash Flows? A Re‐Examination of Inferences Drawn2026
  4. 4Do Investors Fully Understand the Seasonality in Accruals?2025 · 2 citations
  5. 5Evidence on the Relationships Between Earnings and Various Measures of Cash Flow.1986 · 2 citations