When you read the company's financial report, you may wonder why the result is so different between what I imagine and the company's actual situation. What happen?
 
This is the common situation if the accounting treatments have not obeyed accrual basis when preparing the reports. 

Accrual basis means a company's running result and status are recognized as income, cost, expense, assets, liabilities, equity when they meet the accounting recognition conditions even the company has not got invoices from suppliers or issued fapiaos to the company's clients.
 
Take an example, 

when your company already delivers some goods to a certain client, say RMB10,000  and also the risk and ownership of the goods already be transferred to the client, but somehow your company has not issue fapiao to this client.

At this moment, the company has not made the payment RMB7,000 to the vendor who sold goods to your company, and this vendor also has not issue fapiao to your company.
 
Assumed the VAT rate of the goods is 0. Let us see what happen between the treatment on the accrual basis and the treatment on fapiao basis.
 
On the accrual basis, the company recognizes RMB10,000 as revenue, meanwhile recognizes RMB7,000 as cost, and then increases the company’s profit RMB3,000 in the income statement. Also, in the balance sheet, recognize account receivable RMB10,000 and account payable RMB7,000, undistributed profit increase RMB3,000, respectively.
 
On fapiao basis, these two transactions have no any record in accounting books. So there is no any data on the financial report.
 
Difference basis, make big difference financial report.
 
You may think it is unbelievable why fapiao basis exist; it is obviously against the accounting policy. Surely each accountant knows accrual basis, however when they prepare the financial report, if related info. has not been timely and completely transferred to them, based on the situation they got, they think they indeed use the accrual basis, but from the actual situation it is in fact just a fapiao basis. So the report is not the report what you want to get.
 
To make the report reflect the company’s really result, it is very important that operating department and accounting department keep timely and tightly

 communication.

#Why the financial report is so different between what I imagine#accrual basis