What is basis in accounting?

A third option is a combination of cash basis accounting and accrual basis accounting.

Here is a summary of items related to cash basis accounting:

• Revenue recognition - Depends on when revenue is received

• Expense recognition - Depends on when expenses get paid

• Credit Account - Does not include accounts payable or accounts receivable

• Taxation - Taxes are not paid for money that has not been received

• Accuracy - Has the possibility of exceeding the financial wealth of a business or organization

• Usability - Its methods are simple but are less popular than accrual basis accounting

• Utilized by - Small businesses, especially service-based businesses, and nonprofit organizations

And here is a summary of items related to accrual basis accounting:

• Revenue recognition - Depends on when revenue is earned

• Expense recognition - Depends on when expenses are billed

• Credit Account - Includes accounts payable and accounts receivable

• Taxation - Pays taxes on money that is still owed

• Accuracy - Gives an accurate representation of an organization's profitability and performance

• Usability - More complex than cash basis accounting, but is more commonly used

• Utilized by - Corporations, public companies, and businesses filing audited financial statements