Glossary
Accounting Basics

Modified Cash Basis

By: Alec Hollingsworth
Updated:  
June 2, 2025

DEFINITION:

Modified cash basis blends cash and accrual accounting methods, recording revenue when received but some expenses and liabilities when incurred.
Modified cash basis is an accounting method that combines elements of both cash basis and accrual basis accounting. Under this approach, revenue is typically recorded when cash is received, while certain expenses and liabilities—such as fixed assets or payroll—are recorded when they are incurred, rather than when the cash changes hands. This hybrid method gives organizations a more accurate financial picture than pure cash basis, without the complexity of full accrual accounting. Modified cash basis is often used by small businesses and nonprofits that want a balance between simplicity and accuracy in their financial reporting.

Key Takeaways

  • Combines cash and accrual basis features
  • Revenue recorded when cash is received
  • Certain expenses/liabilities recorded when incurred
  • Popular with small nonprofits
  • Less complex than full accrual accounting

Why It Matters

It provides a clearer financial picture than pure cash basis, without the complexity of accrual accounting.

Real World Example

A small nonprofit organization uses modified cash basis accounting. When it receives donations, it records them as income immediately. However, for expenses like payroll and fixed asset purchases, the nonprofit records these when the expense is incurred, even if the cash payment happens later. For example, if the organization buys a new computer on credit, it records the expense at the time of purchase, not when the payment is made. This approach helps the nonprofit keep better track of its obligations and assets without the complexity of full accrual accounting.

How Aplos Helps

Aplos supports organizations using the modified cash basis by allowing flexible transaction entry, reporting, and tracking of both cash and certain accrued items. This helps nonprofits get the insights they need for informed decision-making, without requiring extensive accounting expertise.
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Frequently Asked Questions

What is modified cash basis accounting?

Modified cash basis accounting blends cash and accrual methods, recording income when received and certain expenses/liabilities when incurred.

Who should use modified cash basis?

It is ideal for small nonprofits and organizations seeking a balance between simple and accurate financial reporting without accrual accounting's complexity.

How does Aplos support modified cash basis?

Aplos allows users to track both cash transactions and certain accrued items, making it easy to implement modified cash basis in financial reports.

Related Terms

Temporarily Restricted Net Assets
Aging Report
Grant Restriction
501(c)(3)
Accrual Basis
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