What is a modified cash base?

Modified cash base is an accounting strategy that combines specific elements of two commonly used accounting methods. This strategy pairs specific processes found in the accrual accounting method with methods used with cash accounting. Since both of these source methods are somewhat limited in their access to accounting, the modified monetary base is sometimes considered to be a feasible compromise that combines the advantages of both methods in minimizing disadvantages.

In order to understand how the modified monetary base works, it is important to have an idea of ​​what is done with both acrual and cash methods. With the cash method, the income is reported at the time it is accepted. At the same time, the expenditure is recognized when they are settled, rather than if they occur. On the contrary, the accrual method recognizes income as soon as it earns and expenditure at the time it takes place. Both of these approaches to financial management records are considered in accordance with the generally acceptedand accounting principles.

with a modified cash base can be used both these approaches to monitor specific types of income and expenditure. One of the common models is the use of cash accounting method to take into account short -term income and settlement of outstanding expenditures and at the same time using the incremental method for management of long -term assets and obligations. Small companies and companies that are currently on the market are more likely to use this type of accounting approach, due to the greater degree of flexibility provided by records based on the use of a modified cash base.

There are different views on the effectiveness of using a modified money base. Fans of the concept consider this to be a feasible way to manage everyday expenses while enjoying the ease of accrual accounting in relation to the long -term horizon. The detective sees this combined approach to the financial account methodNiciness as emphasizing positive in many situations, but does not achieve little in the way of presenting a complete image of what is happening to companies.

While the modified cash base can be effective for the purposes of reporting the provisional activities of the Company for shareholders and other investors, this approach is generally not considered to be the possibility of preparing formal financial statements for tax purposes or for the preparation of dividends to shareholders. Modified accounting methods are considered outside the scope of generally received accounting principles. As a result, companies need to use a modified cash base for daily monitoring to return to actual accounting or actual accrual accounting methods in preparing the documentation for anything other than internal use.