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Cash Method Accounting

Cash Method Accounting (Definition)​

Cash method accounting is a method of accounting where income and expenses are recorded when cash is actually received or paid.

Key aspects of cash method accounting include:

  1. Revenue is recognized when cash is received
  2. Expenses are recorded when they are paid
  3. Provides a clear picture of cash on hand
  4. Commonly used by small businesses and individuals
  5. Simpler to maintain than accrual method accounting
  6. May not accurately reflect a companys financial position if there are timing differences between transactions and cash flows
  7. Not compliant with Generally Accepted Accounting Principles (GAAP) for most businesses

While easy to use, cash method accounting may not provide a comprehensive view of a companys financial obligations and expected revenues.