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Modified Cash Basis

Candlefocus Editor
The modified cash basis is widely used among small businesses, non-profit organizations, or those who don’t need to produce detailed financial statements.3 Why? It’s a good combination of accurate information and efficient use of resources. Long-term assets are recorded on an accrual basis and short-term assets are registered using the cash accounting method. This means that while long-term business activities, such as sales and purchases, are tracked with much detail, smaller transactions, such as those involved in owning a car, can be tracked less precisely with the cash basis.

When using the modified cash basis, companies should be aware of the potential risks that come with using a more simplified accounting method. 4For example, delayed or doubtful payments can lead to inaccurate accounts receivable figures.5 And, since cash and accrual methods can produce different results for taxable income which can be misleading for customers and governing bodies.

The modified cash basis can be advantageous to small businesses due to its simplicity and cost-efficiency. And if the business is run in a way that cash-basis accounting is sufficient and appropriate, then this method may be the best choice.Regardless of which method is chosen to maintain records, it’s important that the business documents its transactions well to ensure compliance with laws and regulations. 6

Overall, the modified cash basis is a useful combination of the two accounting methods, providing accurate information along with cost-efficiency. It may not be appropriate for companies with complex businesses, but for those with simpler operations, it can be a great choice.7 Companies should keep in mind that this method does not comply with IFRS or GAAP, meaning that any financial statements produced using this method are not suitable for public disclosure.Nevertheless, it is a useful accounting method usable for tracking activities internally and maintaining accurate records.



1. “Accrual Basis vs. Cash Basis Accounting.” Investopedia, 18 Jan. 2020, www.investopedia.com/terms/a/accrualbasis.asp 2.“What is the Cash Basis of Accounting?” Quickbooks, 30 Jul. 2019, quickbooks.intuit.com/r/bookkeeping/what-is-the-cash-basis-of-accounting/. 3.“Accrual vs. Cash Basis Accounting: What’s the Difference?” FreshBooks, 19 Jan. 2020, freshbooks.com/glossary/accrual-cash-basis-accounting. 4.“What Is Accounting?” Investopedia, 11 June. 2020, www.investopedia.com/insights/what-is-accounting/. 5.“Accounts Receivable: Definition, Process and Best Practices.” Fundera, 07 Aug. 2020, www.fundera.com/resources/accounts-receivable-definition. 6. “What is the Difference between Cash Basis & Accrual Basis Accounting?” Wellspring Financial Group, 06 Dec. 2020, https://www.wellspringfinancialgroup.ca/difference-cash-accrual-basis-accounting/ 7. “Cash Basis Accounting and Accrual Accounting Method.” Diffen, 3 May. 2021, www.diffen.com/difference/Cash_Basis_Accounting_vs_Accrual_Accounting_Method.

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