Hi -

I am taking an accounting class and I am curious as to what types of businesses use what types of accounting methods. I am pretty clear on how the accrual basis and the cash basis work, but I am a little fuzzy on the modified cash basis. Who uses which method and why might clear things up for mw a little.

Thanks!
Angela

I am not sure what a modified cash basis is but the standard business method is the Acrual based acocunting method.

Only very small companies like a mom and pop business use a cash basis accounting method. If you use a cash based system then you have to do adjusting entries to convert it to the Acrual based system at the end of the accounting period.

For an example if you paid for rent in the cash based system you Debit the Rent Expense and Credit Cash. At the end of the accounting period you have to convert the unused portion of the rent so you Debit the unused portion of the rent or the remaining months rent to Prepaid Rent. Then at the beginning of the next period you credit the Prepaid Rent and Debit Rent Expense.