Special Purpose Frameworks

Question 1

Cash Basis

Answer 1

• Revenue Recognition: Recognized when cash is received.
• Expense Recognition: Recognized when cash is paid.
• Used by: Small businesses, sole proprietors, simple transactions
• Advantages: Simplicity, ease of understanding, low cost.
• Disadvantages: Ignores outstanding receivables and payables.
• Compliance: Not in compliance with GAAP or IFRS
• Titles under cash basis:
• Balance Sheet: Statement of Cash & Equity arising from Cash transactions
• Income statement: Statement of cash receipts and disbursements
• Cashflow statement: Not required for financial statements under OCBOA.

Question 2

Modified Cash basis of Accounting

Answer 2

-revenue recognition: Generally recognized when cash is received, come on an accrual basis.

• Expense recognition: Generally recognized when cash paid; some on accrual basis (Deprciation)
• Used by: Small to medium-sized entities
• Advantages: More comprehensive than cash basis, some economic accuracy, simplicity.
• Disadvantages: May not fully represent financial position or performance.

Compliance: Not in compliance with GAAP or IFRS

Titles under Modified Cash basis:
Balance Sheet: Statement of Assets, Liabilities, and Equity- Modified Cash Basis

Income statement: Statement of revenue and Expenses- Modified Cash Basis

Cashflow Statement: Not required for Financial Statements under OCBOA.

Question 3

Income Tax Basis

Answer 3

• Revenue recognition: Recognized according to tax laws and regulations
• Expense Recognition: Recognized according to tax laws and regulations

Used by: Entities aligning financial reporting with tax reporting, closely held businesses.

Advantages: Simplifies tax returns may provide tax planning benefits.

Disadvantages: : May not accurately represent financial position or performance, policy goals. or economic representation.

Compliance: Not in compliance with GAAP or IFRS

Titles under Income Tax Basis
Balance Sheet: Statement of Assets & liabilities- Income Tax basis

Income Statement: Statement of Income- Income Tax Basis

Cashflow statement: Not required for Financial Statements under OCBOA.

Question 4

Regulatory Basis

Answer 4

Revenue Recognition: Recognized according to specific regulations or laws.

Expense Recognition: Recognized according to specific regulations or laws.

Used by: Governmental entities, public utilities, insurance companies, industries with specific regulatory requirements.

Advantages- Ensures compliance with regulations or laws, policy goals, or public interests.

Disadvantages: May noy accurately represent financial position or performance, regulations with other goals in mind.

Compliance: May or may not comply with GAAP or IFRS, depending on regulations or laws.

Titles under Regulatory Basis:
- Balance Sheet: Statement of Financial position- Regulatory Basis.

Income Statement: Statement of Income- regulatory basis

Cashflow statement: Not required for financial statements under OCBOA.

Question 5

Contractual Basis

Answer 5

Revenue Recognition: Recognized according to specific agreements or contracts.

Expense Recognition: Recognized according to specific agreements or contracts.

Used by: Entities with specific contractual obligations, joint ventures, partnerships, unique financing arrangements

Advantages: Tailored to specific contracts or agreements, compliance with obligations, flexibility.

Disadvantages: May not accurately represent financial position or performance, contracts with specific business or financial goals in mind.

Compliance: May or may not comply with GAAP or IFRS, depending on regulations or laws.

Titles under Contractual Basis
Balance Sheet: Statement of Assets & Liabilities- Contractual Basis

Income statement: Statement of Revenue & Expenses- Contractual Basis

Cashflow statement: Not required for financial statements under OCBOA.