Financial statements prepared on the cash basis:

Question

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Financial statements prepared on the cash basis do not comply with GAAP (Generally Accepted Accounting Principles) but are relatively easy to prepare. GAAP requires financial statements to be prepared on an accrual basis, which recognizes revenue when earned and expenses when incurred, regardless of when cash is received or paid. The cash basis only recognizes revenue when received and expenses when paid, which can result in misleading financial statements. As a result, financial statements prepared on the cash basis cannot be audited by a CPA firm.

Financial Statements Prepared on the Cash Basis