cash basis accounting

  

Definition

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.


Use this term in a sentence

  • Me and my friend had to practice a little cash basis accounting in order to determine what we needed to do next.

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  • You should try and use a cash basis accounting technique if you want to always know where all of your funds stand.

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  • Small businesses use cash basis accounting to monitor their income and pay outs, to help them know what their profits/losses are.

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