Which accounting method records income and expenses on a cash basis with selected items recorded on an accrual basis?

• A. cash basis
• B. accrual basis
• C. modified cash basis
• D. modified accrual basis

Answer: (C)

This question is about using a hybrid approach that blends cash-based recording with accrual treatment for specific items. The described method is modified cash basis. It records most income when cash is received and most expenses when cash is paid, but it also recognizes certain items on an accrual basis—typically long-lasting assets, depreciation, and related payables or receivables. This lets the financial statements reflect the true economic position of the association without the full complexity of a pure accrual system, making it practical for small to mid-sized entities.

A pure cash basis would apply cash timing to all items with no accrual for assets or liabilities. A full accrual basis would require recognizing all revenues and expenses when earned or incurred, regardless of cash flow. A modified accrual basis is usually associated with governmental accounting, using different criteria for when revenues are available and expenditures are incurred. The described approach aligns best with modified cash basis.