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.
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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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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.

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References in periodicals archive ?
If using payroll, you must remove payroll taxes payable and the related payroll tax expenses (because they have not yet been paid and therefore should not be reflected in the cash-basis reports).
Senate and House in opposition to limiting the use of the cash-basis method of accounting for certain entities.
* Cash-basis figures are calculated by excluding amortization and impairment of goodwill and net other intangible assets, net of tax benefit.
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.
In this chapter, you will learn how to describe the differences between the cash-basis system, the accrual-basis system, and the accrual-adjusted approach.
The amounts-billed reporting method yields numbers that are only moderately relevant to a cash-basis taxpayer, creating the need for the practitioner to understand the timing of actual events behind the reported figures.
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.
Note that this applies only to those using the accrual method of accounting, not to those on cash-basis accounting.
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.
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.