Describe a modified cash basis of accounting.
A modified cash basis of accounting results from adjustments made to cash basis accounting. Specifically, while most items continue to be accounted for using the cash basis, some items are accounted for using the accrual basis. As a consequence, the financial statements reflect accounts and amounts based on a combination of the cash basis and the accrual basis.
Identify the other comprehensive basis of accounting (OCBOA).
- Cash basis;
- Modified cash basis;
- Income tax basis;
- Regulatory basis;
- A definite set of accounting criteria that has substantial support in practice and which is applied to all material financial statement items (e.g., price level/inflation adjusted statements).
When adjustments to income tax-based financial statements result from IRS determinations, all such adjustments are reported as current period income or expense.
FALSE
In a pure cash basis of accounting, the only asset a balance sheet would report would be cash.
TRUE
Amounts reported in income tax-based financial statements are subject to change as a result of IRS examination and determination.
TRUE
When a firm uses a modified cash basis of accounting, it can modify the cash basis in any way it chooses.
FALSE
Price level or inflation adjusted financial statements are based on an other comprehensive basis of accounting.
TRUE
A set of financial statements based on an other comprehensive basis of accounting would require a Statement of Cash Flows.
FALSE
If a firm uses a modified cash basis of accounting that capitalizes expenditures for long-term assets, it must also recognize depreciation on those assets.
TRUE
When financial statements are prepared using an income tax basis of accounting, nontaxable and nondeductible items related to permanent differences must be recognized separately in revenues and expenses, respectively.
FALSE
The cash basis of accounting will always result in greater revenue than the accrual basis of accounting.
FALSE
A firm that uses a modified cash basis of accounting may capitalize and depreciate long-term assets.
TRUE
When a firm prepares financial statements based on an other comprehensive basis of accounting, the notes to the financial statements must describe the basis of accounting used.
TRUE
A modification to the cash basis of accounting must be consistent with the accrual basis of accounting.
TRUE
In a pure cash basis of accounting, revenue will be recognized only when cash is received.
TRUE
Non-public business entities may prepare financial statements based on a basis of accounting other than standard U.S. GAAP.
TRUE
In a pure cash basis of accounting, the only liabilities a balance sheet would report would be long-term liabilities.
FALSE
When financial statements are prepared using an income tax basis of accounting, nontaxable and nondeductible items are recognized.
TRUE
In a pure cash basis of accounting, cash revenue may be recognized either before or after it would be earned under accrual basis accounting.
TRUE
All business enterprises in the U.S. must prepare financial statements based on standard U.S. GAAP.
FALSE
Identify the “entities” for whom personal financial statements are prepared.
Personal financial statements are prepared for: 1. An individual;
2. A husband and wife;
- A family unit.
Identify the statements included in a set of personal financial statements.
A set of personal financial statements would include: 1. A statement of financial condition (balance sheet);
2. A statement of changes in net worth.
What accounting concepts underlie the preparation of personal financial statements?
Personal financial statements are prepared based on the use of accrual accounting and fair value measurement.
Describe the basis for measuring assets for a personal statement of financial condition.
Assets in a personal statement of financial condition should be measured at estimated current (fair) value in an arms-length transaction, net of disposal costs, if any.
