Basis Accounting Definition

There are two primary methods of recording income and expenses: cash basis and accrual basis. Every business needs to select one method and use it throughout the life of the business. It is possible to change the basis, but in most situations, approval from the Internal Revenue Service (IRS) is required.

Basis Accounting Extended Definition
Businesses need to record transactions using one of two primary methods: cash basis or accrual basis.

When using cash basis, income is reported when it is actually received, and expenses are recorded when they are actually paid.

Accrual basis requires income and expenses to be recorded whenever a transaction occurs, regardless of whether or not the expense has been paid.

Businesses with inventories need to use the accrual basis of accounting or a hybrid basis, a combination of the two primary methods.

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Last Updated By

Andrew Freiman | Mar 01, 2023