Modified Cash Basis

AAA

DEFINITION of 'Modified Cash Basis'

An accounting method that combines elements of the two major accounting methods, the cash method and the accrual method. The cash method recognizes income when it is received and expenses when they are paid for, whereas the accrual method recognizes income when it is earned (for example, when the terms of a contract are fulfilled) and expenses when they are incurred. The modified cash basis method uses accruals for long-term balance sheet elements and the cash basis for short-term ones.

INVESTOPEDIA EXPLAINS 'Modified Cash Basis'

Because both accounting methods have limitations, a business may use a modified cash method to develop what it feels is a more accurate picture of its finances. While the modified cash method may be used for internal purposes, this method does not comply with the Generally Accepted Accounting Principles that companies must follow when preparing their financial statements.



RELATED TERMS
  1. Cash Accounting

    An accounting method where receipts are recorded during the period ...
  2. Modified Gross Lease

    A type of real estate rental agreement where the tenant pays ...
  3. Modified Accrual Accounting

    An accounting method commonly used by government agencies that ...
  4. Accounting

    The systematic and comprehensive recording of financial transactions ...
  5. Accounting Method

    The method by which income and expenses are reported for taxation ...
  6. Accrual Accounting

    An accounting method that measures the performance and position ...
Related Articles
  1. Bonds & Fixed Income

    Accounting Rules Could Roil The Markets

    FAS 142 is an accounting rule that changes the way companies treat goodwill. Be aware of the impact it has on reported earnings to avoid making bad investment decisions.
  2. Fundamental Analysis

    Spotting Creative Accounting On The Balance Sheet

    Companies have ways of manipulating their balance sheets that investors should be aware of.
  3. Options & Futures

    Core Earnings Strip Away "Creative" Accounting

    This metric is an attempt to counteract creative accounting, but it poses its own set of challenges.
  4. Retirement

    A Look At IRA Separate Accounting Rules

    If you are a younger multiple beneficiary, make sure you understand the RMD regulations.
  5. Delivery duty paid (DDP) is a shipping term.
    Investing

    What does DDP Mean?

    Delivery duty paid (DDP) is a shipping term specifying that the seller is responsible for all costs associated with delivery of the goods to the buyer. It is usually used when goods are exported ...
  6. Fundamental Analysis

    What is a good interest coverage ratio?

    Learn the importance of the interest coverage ratio, one of the primary debt ratios analysts use to evaluate a company's financial health.
  7. Fundamental Analysis

    What is a bad interest coverage ratio?

    Understand how interest coverage ratio is calculated and what it signifies, and learn what market analysts consider to be an unacceptably low coverage ratio.
  8. Active Trading Fundamentals

    What is liquidity risk?

    Learn how to distinguish between the two broad types of financial liquidity risk: funding liquidity risk and market liquidity risk.
  9. Technical Indicators

    What is a good gearing ratio?

    Understand the meaning of the gearing ratio, how it is calculated, the definition of high and low gearing, and how they reflect relative financial stability.
  10. Active Trading Fundamentals

    What does the gearing ratio say about risk?

    Find out why lenders and investors pay close attention to a firm's gearing ratios, and why both too much and too little borrowing can be risky.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center