GAAP provides management with discretion over accounting accruals. Management might use the discretion to improve earnings as a measure of firm performance, or engage in opportunistic management of discretionary accruals. Empirical research on accrual management requires a model to identify...

This paper develops a simple integrated model of firm's earnings cash flows and accruals that generates serial and cross-correlation predictions for those series. The model assumes sales follow E random walk costs are either variable or fixed and traditional accounting working capital accruals....