CASH BASIS OF ACCOUNTING Definition

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CASH BASIS OF ACCOUNTING is the accounting basis in which revenue and expenses are recorded in the period they are actually received or expended in cash. Use of the cash basis generally is not considered to be in conformity with generally accepted accounting principles (GAAP) and is therefore used only in selected situations, such as for very small businesses and (when permitted) for income tax reporting. See also Accrual Basis.

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UNIFORM CAPITALIZATION RULES (UNICAP), in the U.S., is a method of valuing inventory for tax purposes that requires capitalization of direct costs, e.g. material and labor, and an allocable portion of indirect costs that benefit or are incurred because of production or resale activities. Certain expenses must be included in the basis of the property or in inventory costs rather than currently deducted. These costs are then recovered through depreciation or amortization or as cost of goods sold.

MATERIALS are physical goods (and their cost) used in the manufacture of a product, often separated into DIRECT MATERIAL (that which goes directly into the product such as cream into ice cream, or steel into cars) and INDIRECT MATERIAL (that which is used in maintaining the manufacturing environment such as cleaning fluids or oil for lubrication of manufacturing equipment). Indirect materials are usually part of the overhead component of cost. The term material, when used without the direct or indirect qualifier, usually refers to direct materials.

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