Contents of a cash basis balance sheet
/What are the Contents of a Cash Basis Balance Sheet?
Under the cash basis of accounting, transactions are only recorded when there is a related change in cash. This means that there are no accounts receivable or accounts payable to record on the balance sheet, since they are not noticed until such time as they are paid by customers or paid by the company, respectively. The following bullet points discuss the accounting methodologies under which different types of line items are included in the cash basis balance sheet. The methodologies noted are itemized next.
Cash Basis Accounting
Under the cash basis of accounting, you record transactions only when there is a change in cash. If there is no change in cash, then there is no transaction to be recorded.
Modified Cash Basis Accounting
Modified cash basis accounting is the same as the cash basis, except that long-term assets and long-term liabilities are included in the balance sheet. The result is a more complete view of the financial position of the reporting entity.
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Accrual Basis Accounting
Under the accrual basis of accounting, you record revenues and expenses as they are earned or incurred, irrespective of changes in cash.
Balance Sheet Contents
The balance sheet contents under the various accounting methodologies are:
Cash and investments. Contains the same information under cash basis, modified cash basis, and accrual basis accounting.
Prepaid expenses. Not used for the cash basis or modified cash basis, since these items are charged to expense. Used under the accrual basis.
Accounts receivable. Not used for the cash basis or modified cash basis, since no transaction is considered to have occurred until the customer pays. Used under the accrual basis.
Inventory. Not used for the cash basis or the modified cash basis, since these purchases are charged directly to expense; however, many cash basis companies prefer to include it. Used under the accrual basis.
Fixed assets. Not used for the cash basis, but is used under the modified cash basis. Also used under the accrual basis.
Accounts payable. Not used under the cash basis or modified cash basis, since no transaction is considered to have occurred until the company pays its suppliers. Used under the accrual basis.
Accrued expenses. Not used for the cash basis or modified cash basis. Used under the accrual basis.
Loans. Not used for the cash basis, though some companies prefer to include it. Used under the modified cash basis and accrual basis.
Common stock. Used under the cash basis, modified cash basis, and accrual basis.
Retained earnings. Used under the cash basis, modified cash basis, and accrual basis.
The exact number of inclusions and exclusions used for the balance sheet under the cash basis is really up to the user; the cash basis is not supported by any accounting standards, so the exact structure of the cash basis balance sheet is decided by common usage. Thus, you will see a variety of alternative formats for the cash basis that may include or exclude additional line items, such as inventory and fixed assets.
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