The modified cash basis of accounting is a hybrid of accrual and cash basis accounting. Modified cash basis uses the cash basis of accounting but then modifies certain aspects of the cash basis of accounting.

For example, using the modified cash basis of accounting, an entity may choose to capitalize property, plant, and equipment and record depreciation expense and accumulated depreciation. In a pure cash basis, depreciation and accumulated depreciation would not be recognized, but a cash disbursement would be shown on the income statement for the property, plant and equipment that was purchased with cash. Since certain aspects can be modified from the cash basis that are reasonable, not all entities using modified cash basis of accounting are comparable.

The modified cash basis of accounting is a comprehensive basis of accounting other than accounting principles generally accepted in the United States. As such, it is only utilized in less than 2% of all instances revealed in CreditScope. Its use appears primarily in certain counties in Kentucky and certain school districts in both Illinois and Missouri.

This article is the fifth installment in a series of articles entitled, "On What Basis Are You Accounting for That?" addressing the following specific topics:

Footnotes Category: