Question

A method of accounting that combines aspects of the cash and accrual methods (i.e., it uses the cash basis for recording revenues and most expenses with exceptions made when cash is paid for assets with useful lives greater than one accounting period) is known as ________.

Answer 1

The accounting method that combines aspects of cash and accrual methods, particularly using cash basis for most transactions but accrual for long-term assets, is termed 'modified cash basis'.

Step-by-step explanation:

The method of accounting that combines aspects of the cash and accrual methods is known as the modified cash basis. This method records revenues on a cash basis, meaning revenue is recognized when cash is received, and most expenses are recorded when cash is paid out.

However, there are exceptions for assets that have useful lives of more than one accounting period, where the accrual method comes into play. In those cases, expenditures for assets are capitalized and depreciated or amortized over their useful lives, like in the accrual method. This hybrid approach provides the simplicity of cash accounting, while still aligning the recognition of long-term assets' expenses with their usage over time, which is more in line with accrual accounting principles.