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Reference.org
Basis of accounting
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<p>In accounting, a basis of accounting is a method used to define, recognise, and report <a href="/facts/Financial_transaction/boHRc8mw">financial transactions</a>. The two primary bases of accounting are the cash basis of accounting, or cash accounting, method and the <a href="/facts/Accrual/TPwWWGmP">accrual</a> accounting method. A third method, the modified cash basis, combines elements of both accrual and cash accounting. </p> <ul><li>The cash basis method records income and expenses when cash is actually paid to or by a party.</li> <li>The accrual method records income items when they are earned and records deductions when expenses are incurred.</li> <li>The modified cash basis records income when it is earned but deductions when expenses are paid out.</li></ul> <p>Both methods have advantages and disadvantages, and can be used in a wide range of situations. In many cases, regulatory bodies require individuals, businesses or corporations to use one method or the other. </p>