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Inferring Transactions from Financial Statements

Author

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  • ANIL ARYA
  • JOHN C. FELLINGHAM
  • JONATHAN C. GLOVER
  • DOUGLAS A. SCHROEDER
  • GILBERT STRANG

Abstract

In this paper, we embed the double entry accounting structure in a simple belief revision (estimation) problem. We ask the following question: Presented with a set of financial statements (and priors), what is the reader's “best guess†of the underlying transactions that generated these statements? Two properties of accounting information facilitate a particularly simple closed form solution to this estimation problem. First, accounting information is the outcome of a linear aggregation process. Second, the aggregation rule is double entry.

Suggested Citation

  • Anil Arya & John C. Fellingham & Jonathan C. Glover & Douglas A. Schroeder & Gilbert Strang, 2000. "Inferring Transactions from Financial Statements," Contemporary Accounting Research, John Wiley & Sons, vol. 17(3), pages 366-385, September.
    • Handle: RePEc:wly:coacre:v:17:y:2000:i:3:p:366-385
    DOI: 10.1506/L0LW-NX5L-4WUR-9JKL
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    References listed on IDEAS

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    1. Newman, P & Sansing, R, 1993. "Disclosure Policies With Multiple Users," Journal of Accounting Research, Wiley Blackwell, vol. 31(1), pages 92-112.
    2. Jacques Crémer, 1995. "Arm's Length Relationships," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 275-295.
    3. Anil Arya & John Fellingham & Doug Schroeder, 2000. "Accounting Information, Aggregation, and Discriminant Analysis," Management Science, INFORMS, vol. 46(6), pages 790-806, June.
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    Cited by:

    1. Renes, S., 2020. "When Debit=Credit. The balance constraint in bookkeeping, its causes and consequences for accounting," ERIM Report Series Research in Management ERS-2020-005-FA, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    2. Anil Arya & John Fellingham & Doug Schroeder & Jonathan Glover, 2002. "Depreciation in a model of probabilistic investment," European Accounting Review, Taylor & Francis Journals, vol. 11(4), pages 681-697.
    3. Alexander Nezlobin, 2012. "Accrual Accounting, Informational Sufficiency, and Equity Valuation," Journal of Accounting Research, Wiley Blackwell, vol. 50(1), pages 233-273, March.

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