What is a comparative statement

what is a comparative statement

What is a cash basis income statement?

A cash basis income statement is an income statement that only contains revenues for which cash has been received from customers, and expenses for which cash expenditures have been made. Thus, it is formulated under the guidelines of cash basis accounting (which is not compliant with GAAP or IFRS ).

A cash basis income statement can contain results that are substantially different from those of an accrual basis income statement, since the recognition of revenue is delayed by the time required for customers to pay for billed amounts, and the recognition of expenses is delayed until such time as the company elects to pay its bills to suppliers. As an example of this difference, if a company were to issue 30-day payment terms to its customers and had similar terms with its suppliers, the results shown in its income statement would effectively be those that would have been reported under the accrual basis of accounting in the immediately preceding month.

Because of the important timing difference between a cash basis income statement and an accrual basis income statement, you should always prominently label the income statement using a format similar to the following:

ABC Company

Cash Basis Income Statement

for the month ended xx/xx/xxxx

To be even more clear

for any reader of the income statement who did not see the revised header, you should relabel the "Net income" line with "Cash basis net income".

Better yet, add a footer to the income statement, stating:

Cash Basis Income Statement - Not Prepared Under Generally Accepted Accounting Principles

The key steps involved in adjusting a cash basis income statement to an accrual basis income statement include the following:

Revenue adjustments :

  • Subtract any billings for which cash was received from customers
  • Subtract any cash deposits received from customers that have not been earned
  • Add billings to customers during the period
  • Add earned but unbilled products/services

Expense adjustments :

  • Subtract payments made for expenses incurred in a prior period
  • Subtract any deposits paid for which the expense has not yet been recognized
  • Add expenses accrued during the period for which there are not yet any supplier invoices
  • Add supplier invoices received during the period, relating to the current period
  • Add depreciation and amortization expense, and other non-cash expenses

Auditors will not certify an income statement prepared under the cash basis of accounting; the statement must be converted to the accrual basis before a certification will be issued.

Related Topics

Source: www.accountingtools.com

Category: Forex

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