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.