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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.
Deferred expenses (or prepaid expenses or prepayments) are assets, such as cash paid out for goods or services to be received in a later accounting period. When the promise to pay is fulfilled, the related expense item is recognised, and the same amount is deducted from prepayments .
Under the modified cash method of accounting, most income and expenses are determined under cash receipts and disbursements, but purchases of equipment and items whose benefit will cover more than one year is to be capitalized, whereas such items as depreciation and amortization are charged to cost. [3]
The cash or accounts receivables are received, that is, when the advances are readily convertible to cash or receivables. When such goods or services are transferred or rendered. For example: Revenues from selling inventory are recognized at the date of sale, often the date of delivery. Revenues from rendering services are recognized when ...
When this cash is paid, it is first recorded in a prepaid expense asset account; the account is to be expensed either with the passage of time (e.g. rent, insurance) or through use and consumption (e.g. supplies). A company receiving the cash for benefits yet to be delivered will have to record the amount in an unearned revenue liability ...
Created in 1984, the GASB addresses state and local government reporting issues. Its structure is similar to that of the FASB's, and the FASB and GASB are located together and share resources. Federal Accounting Standards Advisory Board (FASAB). Created in 1990, the FASAB addresses federal government financial reporting issues.
Under cash accounting: The government's budget surplus decreases (or deficit increases) by the amount of cash used (or debt incurred) to acquire the building in the year the government takes ownership. After the year of acquisition, the only expense recorded is the annual cost to operate and maintain the building.
These include sales and the various expenses incurred during the stated period. A statement of changes in equity reports on the changes in equity of the company over a stated period. A cash flow statement reports on a company's cash flow activities, particularly its operating, investing and financing activities over a stated period.