Cash Accounting
An accounting method that records revenues and expenses only when cash is received or paid.
Cash accounting records transactions only when money physically changes hands—revenue when payment is received, expenses when bills are paid. It is simpler and more intuitive than accrual accounting, making it popular with small businesses and freelancers. The IRS allows cash-basis accounting for businesses with under $25 million in average annual gross receipts.
Example
A plumber fixes a pipe in March and sends an invoice, but the customer pays in April—under cash accounting, the revenue is recorded in April when the money arrives.
Why It Matters for Your Business
Cash accounting tells you exactly how much money you have right now, which is critical for covering bills and payroll, but it can mask long-term profitability issues.
Practical Tips
- •Cash accounting works well if your business is small and transactions are straightforward.
- •Consider switching to accrual if you carry significant receivables or payables.
Related Terms
More Accounting Terms
Accounts Payable
Money owed by a business to its suppliers or creditors for goods or services received but not yet paid for.
Accounts Receivable
Money owed to a business by its customers for goods or services delivered but not yet paid for.
Accrual Accounting
An accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged.
Asset
Any resource owned by a business that has economic value and can provide future benefits.
Balance Sheet
A financial statement showing assets, liabilities, and equity at a specific point in time.
Related Financial Guides & Resources
Automate Your Finances with AI
FiscalInsights uses AI to automate bookkeeping, track expenses, and forecast cash flow — so you can focus on your business.
Start Free Trial