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The Review of Literature on the Role of Earnings, Cash Flows and Accruals in Predicting of Future Cash Flow

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  • Mwila Joseph Mulenga
  • Meena Bhatia

Abstract

Research on the relative ability of accounting information aims in examining the ability of accounting information to predict future cash flow and earnings, based on the assertion given by Financial Accounting Standard Board (FASB) which states that the earnings and its components  have a better predictive power than cash flow itself (FASB,1978 para 44). Many studies have been conducted by various researchers but only few of these studies succeed to match with this assertion. This study aims to provide review on the study related to ability of earnings, cash flows from operations and accruals to predict future cash flows where methodology used in this line of research and presentation of empirical results are discussed. The review provides in depth discussion for the purpose of assisting the researchers to get familiarity with line of financial accounting research investigated capital market based accounting research and also as guidance for future researchers.Keywords- Cash flow from operations, Earnings, Accruals, Prediction, Capital Market Based Accounting Research.                                                             Â

Suggested Citation

  • Mwila Joseph Mulenga & Meena Bhatia, 2017. "The Review of Literature on the Role of Earnings, Cash Flows and Accruals in Predicting of Future Cash Flow," Accounting and Finance Research, Sciedu Press, vol. 6(2), pages 1-59, May.
    • Handle: RePEc:jfr:afr111:v:6:y:2017:i:2:p:59
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    References listed on IDEAS

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    1. Myungsun Kim & William Kross, 2005. "The Ability of Earnings to Predict Future Operating Cash Flows Has Been Increasing—Not Decreasing," Journal of Accounting Research, Wiley Blackwell, vol. 43(5), pages 753-780, December.
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    3. Ahsan Habib, 2010. "Prediction of Operating Cash Flows: Further Evidence from Australia," Australian Accounting Review, CPA Australia, vol. 20(2), pages 134-143, June.
    4. Ali Al‐Attar & Simon Hussain, 2004. "Corporate Data and Future Cash Flows," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(7‐8), pages 861-903, September.
    5. Ali Al-Attar & Simon Hussain, 2004. "Corporate Data and Future Cash Flows," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(7-8), pages 861-903.
    6. Dechow, Patricia M. & Kothari, S. P. & L. Watts, Ross, 1998. "The relation between earnings and cash flows," Journal of Accounting and Economics, Elsevier, vol. 25(2), pages 133-168, May.
    7. Kenneth Lorek & G. Willinger, 2009. "New evidence pertaining to the prediction of operating cash flows," Review of Quantitative Finance and Accounting, Springer, vol. 32(1), pages 1-15, January.
    8. J. Efrim Boritz & Duane B. Kennedy & Jerry Y. Sun, 2007. "Predicting Business Failures in Canada," Accounting Perspectives, John Wiley & Sons, vol. 6(2), pages 141-165, May.
    9. Finger, Ca, 1994. "The Ability Of Earnings To Predict Future Earnings And Cash Flow," Journal of Accounting Research, Wiley Blackwell, vol. 32(2), pages 210-223.
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