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In accounting, a basis of accounting is a method used to define, recognise, and report financial transactions. The two primary bases of accounting are the cash basis of accounting, or cash accounting, method and the accrual accounting method. A third method, the modified cash basis, combines elements of both accrual and cash accounting.The cash basis method records income and expenses when cash is actually paid to or by a party.
The accrual method records income items when they are earned and records deductions when expenses are incurred.
The modified cash basis records income when it is earned but deductions when expenses are paid out.
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