BASE is a simple acronym that can be used to represent changes in an account balance such as a bank account, a financial statement account, or an estimated net worth of an individual. Here is what it stands for:

B-Beginning balance

A-Additions

S-Subtractions

E-Ending balance

These items form a simple mathematical equation to calculate the change in something. You start with the beginning balance, account for any additions and subtractions, which leaves you with the ending balance. There are two key reasons why this is an effective method:

It provides a simple breakdown of both additions and subtractions for a given time frame. It is very easy to understand that someone's bank account went from $1,000 to $2,000 in the span of a month but having that extra detail to say that they spent $110,000 and made $111,000 can mean a lot.
Algebra can be used to solve for missing parts. In many cases, accountants have 3 of the 4 parts of the equation and can solve for the amounts rather than use other, more complicated means to find the missing part.

How is it Used?

While the formula itself is very easy to understand in theory, it is also important to understand what each of the components represents in any given situation. By understanding the real-world implication of each part, you can put together better schedules and perform better analysis. Here are some examples:

Financial Accounting: Cash

Every month on my bank statement there's a little section of the top that says my beginning balance, the additions to my account such as checks and deposits (as well as interest paid), the subtractions to my account such as payments and service charges, and finally the ending balance as a result of all that activity.

Managerial Accounting: Inventory

In managerial accounting, inventory costing in management is a common headache for those who deal with inventory. The base framework is used to effectively manage different types of inventory. formula might look like this for finished goods inventory:

For larger companies in particular this formula is very useful because they might not know exactly how much was sold, but they do know how much is left over so they can use algebra to solve for the cost of goods sold during the period.

Forensic Accounting: Fraud Examination

Forensic examination demonstrates why it is so important to understand what the additions and subtractions are. Forensic accountants use simple models to determine if there are unreported funds for a person that may be committing fraud or some other illegal activity. This is demonstrated in the forensic accountants use of an estimated net worth calculation. During any given period, someone's net worth could be:

In this example, the forensic accountant is checking to see if the change in net worth is reasonable based on the known expenditures and income from known sources. If the calculation does not make sense, then it is very likely there is some unreported income in the mix, making up the difference in the “A” portion of the equation.

Although the concept of this base framework may be relatively simple, it is very important that you understand what it means and start thinking about balances in this way. by using this framework to understand the changes and account balances or the activities for certain individual during a given period, it will be much easier for you to explain extract and analyze the activity.

What is the "BASE" framework?