Modified Cash Basis

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.

BREAKING DOWN '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. Accounting Method

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

    Accrual accounting is an accounting method that measures the ...
  3. Direct Method

    A method of creating a statement of cash flows during a given ...
  4. Cash Cost

    A cash basis accounting cost recognition process that classifies ...
  5. Cash Basis

    A major accounting method that recognizes revenues and expenses ...
  6. Constant Yield Method

    One of two ways of calculating the accrued discount of bonds ...
Related Articles
  1. Investing

    What is Cash Basis Accounting?

    Cash basis accounting recognizes revenues and expenses at the time cash is paid or received.
  2. ETFs & Mutual Funds

    Don't Lose Your Shirt On Mutual Fund Sales

    Mutual funds aren't guaranteed profit-makers, but with the right calculations and timing, you can avoid major losses.
  3. Investing

    Cash Flow From Investing

    Cash flow analysis is a critical process for both companies and investors. Find out what you need to know about it.
  4. Personal Finance

    Reverse Mortgage

    Learn more about this method of borrowing money against the value of your home.
  5. Markets

    Accounting For Differences In Oil And Gas Accounting

    How a company accounts for its expenses affects how its net income and cash flow numbers are reported.
  6. Managing Wealth

    Cost Basis Basics

    The term "cost basis" refers to the original value of a security you own. When you sell a stock, bond or mutual fund, you use the cost basis to determine your profit or loss, which in turn affects ...
  7. Investing

    How To Choose The Best Stock Valuation Method

    Don't be overwhelmed by the many valuation techniques out there - knowing a few characteristics about a company will help you pick the best one.
  8. Markets

    How Does National Income Accounting Work?

    National income accounting is an economic term describing the system used by a country to gather data and determine aggregate economic activity.
  9. Investing

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
  10. Investing

    What does Accrual Mean?

    In accrual-based accounting, transactions are recorded on the books as they occur, even if payment has not yet been received or made. Accruals represent liabilities and non-cash-based assets. ...
RELATED FAQS
  1. How does accrual accounting differ from cash basis accounting?

    The main difference between accrual and cash basis accounting is the timing of when revenue and expenses are recognized. ... Read Answer >>
  2. What is the difference between accrual accounting and cash accounting?

    Understand the differences between the two basic methods of accounting commonly used by businesses: cash accounting and accrual ... Read Answer >>
  3. When are businesses required to use accrual accounting?

    Determine when the accrual accounting method must be used instead of cash accounting. Most businesses use accrual accounting ... Read Answer >>
  4. Why does the Internal Revenue Service (IRS) care about accounting practices?

    Learn why the Internal Revenue Service cares about accounting practices, as these ensure the accurate reporting of financial ... Read Answer >>
  5. When is accrual accounting more useful than cash accounting?

    Learn when accrual accounting is more useful than cash accounting when trying to determine a company's performance over a ... Read Answer >>
  6. When are expenses and revenues counted in accrual accounting?

    Take an in-depth look at the treatment of revenues and expenses within the accrual method of accounting and learn why many ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center