Back to Encyclopedia
Cash-Basis Accounting
Definition: An accounting system that doesn't record accruals but instead recognizes income (or revenue) only when payment is received and expenses only when payment is made. There's no match of revenue against expenses in a fixed accounting period, so comparisons of previous periods aren't possible.
The cash method is simple in that the business's books are kept based on the actual flow of cash in and out of the business. Income is recorded when it's received, and expenses are reported when they're actually paid. The cash method is used by many sole proprietors and businesses with no inventory. From a tax standpoint, it's sometimes advantageous for a new business to use the cash method of accounting. That way, recording income can be put off until the next tax year, while expenses are counted right away.
The cash method may also continue to be appropriate for a small, cash-based business or a small service company. You should consult your accountant when deciding which accounting method would be best for your company.
Browse By
Categories
Accounting
Advertising
Biz Opportunities
Business Expansion
Business Plans
Business Structure
Credit and Collections
E-Business
Employee Benefits
Employee Management
Employees
Expansion Financing
Financial Management
Financing
Franchising
Government Help
Home Based Business
Insurance
Inventing
Investing
Legal Issues
Location
Management
Market Research
Marketing
Marketing Tactics
Operations
PR
Sales
Starting A Business
Startup Financing
Taxes
Technology