Cash Basis of Accounting
As stated earlier, the cash basis of accounting is not an acceptable basis of accounting for preparing governmental financial statements in accordance with GAAP. So why look at the cash basis first? Because it is the easiest to understand and will help you to understand the other accounting bases.
Under the cash basis of accounting, revenues are recorded when cash is received. Expenses are recorded when cash is paid out. For example, a government purchases office supplies from a neighborhood office supply store, Clips. The supplies are ordered on January 1, received on January 15, and paid for on January 31. Under the cash basis of accounting, no accounting entries are recorded until January 31, when the office supplies are actually paid for. For an example on the revenue side, assume a town’s real estate tax for the town’s fiscal year, which begins July 1, is levied on June 10 (just before the end of the fiscal year) and is due on July 15. If a taxpayer pays his or her tax bill on July 13, then that is the date the real estate tax revenue is
recorded under the cash basis of accounting. If the taxpayer pays his or her tax early, say June 20 in the prior fiscal year, the real estate tax revenue would be recorded in the prior fiscal year (the one that ends on June 30, ten days after the receipt of the real estate tax) under the cash basis of accounting.
Again, from an accounting perspective, recording transactions on the cash basis could not be simpler. When are transactions recorded? Transactions are recorded when cash is received and when cash is disbursed. If the cash basis were acceptable for preparing governmental financial statements in accordance with GAAP, this book would end here, because that would be about all you would need to know about governmental accounting. Since it is not, read on.
Taken From : Governmental Accounting Made Easy
February 12th, 2009 at 7:13 am
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