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Defuse the Bomb That Threatens State Budgets

Dec. 20 (Bloomberg) -- Imagine a company that allows its employees to take nothing in salary this year in exchange for promissory notes to pay them twice as much in 10 years. Although there would be no immediate cash outlay, the company would still be required to accrue expenses reflecting the promises.

That “accrual basis” treatment is important, because without it a company could present a false picture of its finances. If it didn’t have to show the cost of promised future expenditures, the company could present itself as breaking even or making money when neither was the case. Creditors, suppliers, customers and employees dealing with the company would be unaware of the risks they were taking.