Accruals. Accrual accounting matches revenue with expenses, however accruals can be used to manipulate income and expenses. In the Forbes Magazine article, “Cash Doesn’t Lie,” written by Daniel Fisher, the author discusses the use of negative accruals, changes to estimates and recognizing income before it is earned. Read the article and then:
a. Discuss the use of each of these three techniques and their effect on current and future earnings reporting.
b. How should changes of accounting estimates that significantly affect income be reported? Should they be regarded as a change in accounting principle?
c. Research revenue recognition and discuss the accounting rules violated that brought down the company Sunbeam.