In our two previous posts, we have discussed the different financial statement presentations, GAAP, cash basis and now we will define modified cash basis of reporting.
There must be "substantial support" for reporting under the modified cash basis. Ordinarily, a modification would have substantial support if the method is equivalent to the accrual basis of accounting for the particular item and if the method is not illogical. The modified cash basis is more common than the "pure" cash basis.
Examples include the need to report property and equipment purchased as assets; accumulated depreciation; material amounts of inventory purchased for cash as assets; liabilities arising from the receipt of borrowed cash; and employee withholding taxes not deposited with the IRS.
See our next post that discusses how to disclose these modifications.
Posted by David DuBois
