What bases of accounting do not involve the capitalization of fixed assets?a.Modified Accruals Basisb.Full Accruals Basisc.Cash Basisd.Modified Cash Basis
Question
What bases of accounting do not involve the capitalization of fixed assets?
a. Modified Accruals Basis
b. Full Accruals Basis
c. Cash Basis
d. Modified Cash Basis
Solution
The Cash Basis and Modified Cash Basis of accounting do not involve the capitalization of fixed assets.
In Cash Basis accounting, revenue is recognized when cash is received and expenses are recognized when they are paid. This means that fixed assets are not capitalized, but are expensed in the period they are acquired.
Similarly, in Modified Cash Basis accounting, certain modifications are made to the cash basis to account for long-term items, but it still does not involve capitalization of fixed assets. Instead, these are also expensed in the period they are acquired.
On the other hand, both Modified Accruals Basis and Full Accruals Basis of accounting involve the capitalization of fixed assets. In these methods, fixed assets are capitalized and depreciated over their useful life.
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