Basis of accounting

Part of a series on
Accounting
Historical cost Constant purchasing power Management Tax
Major types Audit Budget Cost Forensic Financial Fund Governmental Management Social Tax
Key concepts Accounting period Accrual Constant purchasing power Economic entity Fair value Going concern Historical cost Matching principle Materiality Revenue recognition Unit of account
Selected accounts Assets Cash Cost of goods sold Depreciation / Amortization (business) Equity Expenses Goodwill Liabilities Profit Revenue
Accounting standards Generally-accepted principles Generally-accepted auditing standards Convergence International Financial Reporting Standards International Standards on Auditing Management Accounting Principles
Financial statements Annual report Balance sheet Cash-flow Equity Income Management discussion Notes to the financial statements
Bookkeeping Bank reconciliation Debits and credits Double-entry system FIFO and LIFO Journal Ledger / General ledger Trial balance
Auditing Financial Internal Firms Report Sarbanes–Oxley Act
People and organizations Accountants Accounting organizations Luca Pacioli
Development History Research Positive accounting Sarbanes–Oxley Act
Misconduct Creative Earnings management Error account Hollywood Off-balance-sheet Two sets of books
v t e

In accounting, a basis of accounting is a method used to define, recognise, and report financial transactions.^[1] The two primary bases of accounting are the cash basis of accounting, or cash accounting, method and the accrual accounting method. A third method, the modified cash basis, combines elements of both accrual and cash accounting.

• The cash basis method records income and expenses when cash is actually paid to or by a party.
• The accrual method records income items when they are earned and records deductions when expenses are incurred.
• The modified cash basis records income when it is earned but deductions when expenses are paid out.

Both methods have advantages and disadvantages,^[2][3] and can be used in a wide range of situations.^[4] In many cases, regulatory bodies require individuals, businesses or corporations to use one method or the other.