The Conceptual Framework states: Accrual accounting depicts the effects of transactions and other events and circumstances on a reporting entity’s economic resources and claims in the periods in which those effects occur, even if the resulting cash receipts and payments occur in a different period. This is important because information about a reporting entity’s economic resources and claims and changes in its economic resources and claims during a period provides a better basis for assessing the entity’s past and future performance than information solely about cash receipts and payments during that period.
Why do you think the standard setters argue that information about earnings based on accrual accounting provides a better prediction of the firm’s present and continuing ability to generate cash flows than information limited solely to cash receipts and payments during the period?