cash basis accounting

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Cash Basis Accounting

A system of accounting that recognizes revenue in the order in which it is received, and expenses on the same basis. Cash basis accounting does not deal with accounts receivable or accounts payable and only recognizes transactions actually paid for. This accounting system is easiest and perhaps best for organizations with few or no credit sales. See also: Accrual Accounting Convention.

cash basis accounting

A method of accounting in which the receipt and payment of cash are the basis for recording transactions. Thus it is not the date on which goods and services are received that matters, as in accrual accounting, but the dates on which the cash changes hands for the transactions. Cash basis accounting is typically used for tax purposes by individuals but not by corporations. Compare accrual accounting.

Cash basis accounting.

Cash basis accounting is one of two ways of recording revenues and expenses. Using this method, a company records income on its books when it receives a payment and expenses when it makes a payment.

In accrual accounting, by comparison, a company counts revenue as it's earned and expenses as they're incurred.

For example, when a magazine company sells annual subscriptions, it receives the cash for the subscriptions at the beginning of the year, but it doesn't earn the whole amount of the subscription cost until it has sent the subscriber a full year's issues of the magazine.

In cash basis accounting, paid subscriptions are recorded as revenue when the company receives the payments. In accrual accounting, the company records revenue only as the subscription is fulfilled.

A $24 subscription for 12 monthly issues of a magazine would result in immediate revenue of $24 in cash basis accounting, versus an accrual of $2 of revenue each month under accrual accounting.

References in periodicals archive ?
Senate and House in opposition to limiting the use of the cash-basis method of accounting for certain entities.
The Fifth Circuit Court of Appeals upheld a Tax Court decision that a change in accounting method occurred when the IRS disallowed an accrual-basis taxpayer's deduction for inventory purchased on account from a related-party cash-basis taxpayer.
There are two general methods of accounting for the internal books and records of a company as well as for tax purposes: the accrual-basis and cash-basis methodologies.
However, if property with (1) no basis in the shareholder's hands (such as cash-basis receivables) or (2) a FMV in excess of its basis is transferred, the shareholder will recognize gain to the extent of the lesser of any boot received or the FMV in excess of basis.
Business appraisers adjust cash-basis financial statements to an accrual basis in order to evaluate economic income and economic assets.
Cash-basis statements are less costly because the detailed records needed to comply with GAAP reporting are unnecessary.
For the separate-return short year of December 23 through December 31, 1982, SoCal - which was a cash-basis taxpayer - deducted interest it paid or credited during the short period but that had accrued during the last six months of 1982.
As with other expenses paid to a cash-basis member, an accrual-basis LLC cannot deduct rent expense owed to a cash-basis member until the expenses are paid and included in the member's income; see Sec.
Tax-basis and cash-basis, including modified-cash-basis, financial statements are the most widely used OCBOA statements.
461(g) generally provides that a cash-basis taxpayer must treat prepaid interest in the same manner as that of an accrual-basis taxpayer.
Thus, an accrual-basis payor would be placed on the cash-basis method of accounting with respect to the deduction of amounts (such as interest) owed to a related cash-basis taxpayer.