Understanding When a Cash Basis Ledger Should be Used

Typically, organizations do not use Cash Basis as their main basis of accounting because it is not recognized as a Generally Accepted Accounting Principle (GAAP).

Commercial entities governed by the Financial Accounting Standards Board (FASB), use the Accrual method of accounting. US Public Sector Entities use Modified Accrual and Accrual Accounting for their basis of accounting. International Public Sector countries have adopted International Public Sector Accounting Standards (IPSAS), which is based on accrual accounting and encourages countries to move away from cash basis. International commercial entities follow International Financial Reporting Standards (IFRS) that were developed and maintained by the International Accounting Standards Board (IASB).

However, in the US, Public Sector, organizations may be permitted to elect a budgetary basis other than GAAP. US Governments are required to present a Budgetary Comparison Report in their annual report which must include actuals on the same basis as their budgetary basis. When governments elect to use a Cash Basis or Modified Cash Basis for their Budgetary Basis, a need to maintain a cash basis ledger arises.

Private Business can occasionally require the need for a cash basis ledger to support internal reporting requirements.