Net income or loss can differ significantly depending on whether a cash, accrual, or modified cash basis is used.

• A. cash basis
• B. accrual basis
• C. modified cash basis
• D. all of the above

Answer: (D)

Different accounting bases record revenues and expenses at different times, so net income can vary depending on which basis you use.

With cash basis, income is recognized only when cash is received and expenses only when cash is paid. This ties net income directly to actual cash flow and ignores amounts owed to you or what you owe.

With accrual basis, revenues are recognized when earned and expenses when incurred, regardless of cash movement. This matches income to when the work was done and obligations were incurred, including accounts receivable and accounts payable, which can shift reported profit compared with cash basis.

Modified cash basis sits between the two: it uses cash timing for most items but makes specific adjustments, often capitalizing large purchases and depreciating assets rather than expensing them immediately. This changes how expenses appear in profit and can alter net income relative to both cash and full accrual bases.

Because each method changes the timing and treatment of income and expenses, net income can differ significantly under each one. That’s why all three bases can yield different results.