COMM-3016EL Chapter Notes - Chapter 4A: Accrual, Deferral, Accounts Receivable
1 Mar 2018
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Document Summary
Most companies use the accrual basis of accounting: they recognize revenue when it is earned and recognize expenses in the period that they are incurred. Some small enterprises and the average individual taxpayer, however, use a strict or modified cash basis approach . Under the strict cash basis, revenues are recorded only when cash is received, and expenses are recorded only when cash is paid. Income is determined based on the actual collection of revenues & payment of expenses: cash basis financial statements do not conform with the generally accepted accounting principles. The modified cash basis, a mixture of cash and accrual, is the method often followed by professional services firms (doctors, lawyers, etc. ) and by retail, real estate, and agricultural operations. It is the pure cash basis of accounting with modifications that have substantial support.
