What Does “Income Basis” Mean in Accounting and Taxation?

[riya]

I’ve come across the term “income basis” several times in financial and tax discussions, but I’m a bit confused about its exact meaning. Does it refer to how income is calculated for tax purposes (like cash vs. accrual basis), or something else entirely? Could someone explain it with an example—especially how it affects reporting or tax filing?

 

[Sunita]

Income basis” usually refers to the method used to determine when income is recognized for tax purposes—most often the cash basis or accrual basis.

• Cash basis: You report income when you actually receive it and deduct expenses when you pay them.
• Accrual basis: You report income when it’s earned and expenses when they’re incurred, regardless of payment timing.

Example: If you send a client an invoice in December but get paid in January:

• On the cash basis, you report it in January.
• On the accrual basis, you report it in December.