Cash basis of accounting

The cash basis of accounting is a financial reporting method where revenues and expenses are recorded only when cash is actually received or paid. This approach contrasts with the accrual basis of accounting, which recognizes transactions when they are earned or incurred, regardless of cash flow. The cash basis is simpler and more straightforward, making it popular among small businesses and individuals. However, it may not provide a complete picture of financial health, as it does not account for outstanding receivables or payables.