Cash/Modified/Income Tax Basis-pg162-165

Question 1

Cash Basis

Answer 1

Based solely on cash receipts and cash disbursements

Balance sheet would show only asset CASH and Equity

Question 2

Modified Cash Basis

Answer 2

Some Cash and some Accrual Basis
Acceptable if: substantial support:
a. modification is equivalent to element of Accrual Basis
b. Modification is logical and consistent with GAAP

Question 3

Most Common Acceptable Modifications

Answer 3

1. Recognizing acquisition PPE and Inv as assets rather than expense ( depreciating, amortizing, and otherwise writing off asset in reg manner)
2. Recog AR and AP when when earned/incurred rather than deferring recog until collections/pmts are made
3. REcog income taxes when become Payable rather than when pd

Question 4

Income Tax Basis

Answer 4

Use Federal Income tax rules-recog when taxable income or deductible expense would be recognized on tax return.
Nontaxable receipts (REV) and nondeductible pmts (EXP) generally recog in statement of REV & EXP
a. separate line item in rev/exp section of statement of rev/exp
b. separate line item as additions or deduction from net rev & exp
c. nature and amt disclosed in notes to FS

Question 5

Adj to FS under Income Tax Basis

Answer 5

1. Adj relates to error in tax return of prior yr, then prior period adj is appropriate
2. Adj relates to item not in error and not in BS then adj would be treated as current period expense/income
3. Adj item not in error and IS balance sheet related adj wold be treated as prior period adjustment

Question 6

Other acceptable non-GAAP basis of Acct

Answer 6

1. Compliance with Regulatory Agencies

2. Price Level/Inflation adjusted FS