Dodge on Why the Accrual Method Should Be Eliminated

Joseph M. Dodge (Florida State) has published Exploring the Income Tax Treatment of Borrowing and Accruals, or Why the Accrual Method Should Be Eliminated, 26 Va. Tax Rev. 245 (2006).  Here is the abstract:

In this article, Dodge examines the tax treatment of borrowing under the income tax. The current income tax treatment is contrasted with a cash-method treatment, which is inclusion of borrowed funds coupled with the deduction of the principal and (where appropriate) the interest. (An alternative would be exclusion of the borrowing coupled with disallowance of both principal and interest.) The current approach is appropriate in the case of debt-financed investments (capital expenditures) that produce fully-taxed income, but the cash-method approach is right for debt financed-expenses (and lightly-taxed investments). Dodge discusses the accrual method of accounting for liabilities to pay future expenses, and concludes that cash-method treatment is theoretically correct in most circumstances.