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Cash Accounting


Cash accounting: Simple example of cash accounting

 

Some Definitions of Cash Accounting:

1. An accounting method where receipts are recorded during the period they are received, and expenses are recorded in the period in which they are actually paid. Cash accounting is one of the two forms of accounting. The other is accrual accounting, where revenue and expenses are recorded when they are incurred. Small businesses often use cash accounting because it is simpler and more straightforward, and it provides a clear picture of how much money the business actually has on hand. Corporations, however, are required to use accrual accounting under generally accepted accounting principles.

Cash Accounting revenue

2. 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.

3. An accounting method in which income is recorded when cash is received, and expenses are recorded when cash is paid out. Cash basis accounting does not conform with the provisions of GAAP and is not considered a good management tool because it leaves a time gap between recording the cause of an action (sale or purchase) and its result (payment or receipt of money). It is, however, simpler than the accrual basis accounting and quite suitable for small organizations that transact business mainly in cash. Also called cash accounting.

 

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