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Cash Basis Accounting: Definition and Meaning
Definition
Cash basis accounting is an accounting method that generally records income when cash is received and expenses when cash is paid.
Why It Matters
Cash basis accounting can be simpler than accrual accounting, but it may not show all amounts earned, owed, or incurred at a specific date. A business using cash-basis records may still need supplemental information to understand receivables, payables, project costs, and cash needs.
Tax rules and financial-reporting requirements may affect whether a business can or should use the cash method. The appropriate method depends on the business’s facts and applicable rules.
Example
A business receives a customer payment in January for work performed in December. Under the cash method, it generally records the income in January when cash is received.
Related Terms
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