Basis of accounting

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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.