IFS Money and banking Statistics are intended to be on a cash basis, meaning that transactions are recorded when cash is paid or received. However, accrual accounting is generally preferred as a tool for internal business management, since it recognizes the fact that leads and lags in cash flows hinder the evaluation of the profitability of current operations. Many of the accrual items that appear in the balance sheets of financial institutions represents actuarial judgements about the consequences of future activities which can not be known with certainty.
Accrual accounting introduces two types of entries into balance sheets that are not found in accounts drawn up on a cash basis;
(i) accrued receivables/payables measuring future incomes/expenditures, and
(ii) deferred charges/credits that recognizes prepayments made/received for goods and services to be provided in the future.
Conceptually, treating accrued receivables/payables as financial assets/liabilities assumes that additional financial instruments would have been created if payment had been made at the time financial services were provided. It would thereby preclude the possibility that payment might as readily have been made by liquidation or transfer of an existing financial instrument. From a practical viewpoint, actuarial practices used in accrual accounting vary greatly among countries and are not readily amenable to international standardization. Moreover, while it is possible to adjust data reported on an accrual basis to a cash basis, the opposite is not possible.
The types of accrual items that appear most frequently in national sources, and which are excluded when measuring on a cash basis, are; interest payable/receivable, arrears and write-offs, unearned discount on loans, and unpaid capital.
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