An accounting basis of recording transactions and events only when cash receipt/ payment is involved. More specifically, cash accounting is based on recording income only when received and expenses only when paid out. This method tracks the movement of cash, irrespective of the broader economic context of the transaction/ event. One of the major weaknesses of this method is that recognition of revenue and expenses could not match the period during which a given transaction was made. In other words, for expense recognition, cash payment could be in a different period from revenue recognition.
Cash accounting may suit the financial reporting needs of small firms.
Comments