Glossary
Financial Concepts
Cash Basis Accounting
An accounting method that recognizes an expense in the period it was actually paid, regardless of when the underlying service was performed. Cash basis accounting is simpler than accrual accounting but is not the GAAP standard, and mixing cash-basis vendor bills into an otherwise accrual-based reconciliation creates a timing error a firm should be able to name precisely.
Firm impact
A reconciliation that's mostly accrual-based but recognizes a handful of large invoices on a cash basis instead can create a pattern of timing errors that repeats every time a bill happens to be paid late or early. Naming the specific inconsistency, rather than describing it generally, makes the finding easier for a client's counsel to act on.
How this gets abused
A landlord's reconciliation follows accrual accounting for most expense categories but recognizes a $60,000 roof repair invoice on a cash basis, in the year it was paid rather than the year the repair was completed. That inconsistency shifts the expense into a different lease year than where every other expense in the same reconciliation is tested.
Practitioner note
When a reconciliation mixes accounting bases across expense categories, document each instance separately with the invoice date, service date, and payment date, since a single mislabeled accounting-policy note won't capture a pattern that varies line item by line item.
FAQ
Questions about cash basis accounting
Is cash basis accounting ever acceptable for a CAM reconciliation?
Some smaller landlords use cash basis accounting throughout their books, and a lease may not specify which method governs. The problem isn't cash basis accounting itself, it's a reconciliation that mixes bases inconsistently across expense categories or years.
How does a firm document a cash-basis timing error for a client?
List the specific invoice, its service date, its payment date, and which lease year each date would place it in. Showing the concrete dates makes the timing error clear without relying on a general accounting-policy label.
You know the term. Now check the math.
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