What is cash accounting?

• Cash accounting

• Accrual accounting

Cash accounting deals with the recording of finances when money is exchanged, while accrual basis in accounting refers to when the transaction occurs, and whether or not any money has been paid or received.

There is also a third option, which is a combination of cash basis accounting and accrual basis accounting.

Here is a summary of items related to cash basis accounting:

• Revenue recognition - Depends on when revenue is received

• Expense recognition - Depends on when expenses get paid

• Credit Account - Does not include accounts payable or accounts receivable

• Taxation - Taxes are not paid for the money that has not been received

• Accuracy - Has the possibility of exceeding the financial wealth of a business or organization

• Usability - Its methods are simple and straightforward but are less popular than accrual basis accounting

• Utilized by - Small businesses, especially service-based businesses, and nonprofit organizations

And here is a summary of items related to accrual basis accounting:

• Revenue recognition - Depends on when revenue is earned

• Expense recognition - Depends on when expenses are billed

• Credit Account - Includes accounts payable and accounts receivable

• Taxation - Pays taxes on money that is still owed

• Accuracy - Gives an accurate representation of an organization's profitability and performance

• Usability - More complex than cash basis accounting, but is more commonly used

• Utilized by - Corporations, public companies, and businesses filing audited financial statements