Cash Basis
Cash Basis is a straightforward way of tracking money in business accounting. It's like recording your personal checking account - you only count money when it actually comes in or goes out. For example, if a company sells something in December but gets paid in January, they would record that income in January. This is different from accrual accounting, which records transactions when they're agreed upon, not when money changes hands. Many small businesses and contractors use cash basis accounting because it's simpler and gives a clear picture of how much money is actually available.
Examples in Resumes
Managed small business accounts using Cash Basis accounting method
Transitioned company bookkeeping from Cash Basis to accrual accounting
Prepared tax returns for contractors using Cash Basis accounting
Typical job title: "Accountants"
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Example Interview Questions
Senior Level Questions
Q: How would you explain the advantages and disadvantages of cash basis versus accrual accounting to a client?
Expected Answer: Should demonstrate ability to explain complex concepts simply, discuss tax implications, and provide relevant examples for different business types. Should mention cash flow visibility, tax timing, and business size considerations.
Q: What situations would make you recommend switching from cash basis to accrual accounting?
Expected Answer: Should discuss business growth indicators, revenue thresholds, inventory management needs, and lending requirements. Should show understanding of business strategy and regulatory requirements.
Mid Level Questions
Q: How do you handle prepaid expenses under cash basis accounting?
Expected Answer: Should explain that in cash basis, expenses are recorded when paid, regardless of when the service occurs. Should provide examples like insurance or rent paid in advance.
Q: How does cash basis accounting affect tax reporting?
Expected Answer: Should explain how timing of income recognition and expenses can affect tax liability, and discuss common tax planning strategies under cash basis.
Junior Level Questions
Q: What is the main difference between cash basis and accrual accounting?
Expected Answer: Should explain that cash basis records transactions when money changes hands, while accrual records them when earned or incurred, regardless of payment timing.
Q: What types of businesses typically use cash basis accounting?
Expected Answer: Should mention small businesses, sole proprietors, and service-based businesses, explaining why it's suitable for these entities.
Experience Level Indicators
Junior (0-2 years)
- Basic bookkeeping
- Recording cash transactions
- Bank reconciliations
- Simple tax return preparation
Mid (2-5 years)
- Tax planning for small businesses
- Financial statement preparation
- Multiple client management
- Accounting software expertise
Senior (5+ years)
- Complex tax strategy
- Business advisory services
- Team supervision
- Client relationship management
Red Flags to Watch For
- Confusion between cash basis and accrual accounting fundamentals
- Inability to explain basic bookkeeping concepts
- Lack of experience with accounting software
- Poor understanding of tax implications
