what are the four bases of accounting methods?
- 1 decade agoFavorite Answer
There are four basic methods of accounting available for an overall method of accounting. They are:
1) The cash method - Under the cash method, income is recognized when actual cash is received by the taxpayer and expense is recognized when paid.
2) The accrual method - The accrual method recognizes income when billed and expenses upon economic performance.
3) The accrual less retainage method - This method is similar to the above method, except that retention withheld under contract provisions is not reported as income until the right to receive the income is fixed under the contract terms.
4) Hybrid methods - Could be utilized for a variety of circumstances, such as part cash and part accrual where a specific component (such as inventory) is accounted for using the accrual method and the remaining accounts are maintained with the cash method. If the company has long-term contracts as defined above, then they are subject to IRC §460, which is the primary guidance for accounting for long-term contracts and imposes many more restrictions than other methods.