An appraiser reviews the expenses from an income property. What is the method of accounting called where expenses are recorded when paid and income when received?

The method of accounting where expenses are recorded when they are paid and income when it is received is known as the cash basis method. This approach is straightforward and reflects the actual cash flow of the business, making it easier for appraisers to assess the property’s financial performance, particularly in terms of liquidity.

Under the cash basis, transactions are recognized only when cash changes hands, meaning that revenues and expenses are recorded at the time of actual payment or receipt. This method is especially useful for income properties where cash flow is a critical factor, as it provides a clear and immediate picture of the financial status without the complications of estimating future transactions.

In contrast, other methods like the accrual basis recognize revenues and expenses when they are incurred, regardless of when the cash is exchanged, making them less effective for assessing immediate cash flow. The modified cash basis incorporates elements from both cash and accrual accounting but is not purely cash-based. Fair value basis pertains to valuing assets and liabilities at their current market value, which is different from how income and expenses are reported.