Cash accounting
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Cash accounting is a method of accounting which is used in many small businesses. Companies that are publicly-traded or subject to government regulation, however, cannot use cash accounting; they are required to use accrual accounting.
Under cash accounting, revenues are recorded on the accounting records when payment is received under cash accounting. Similarly, expenses and liabilities are recorded when payment is made.
A hybrid form of cash accounting, called modified cash accounting, is used in many cases. It generally works the same as cash accounting except for when a capital asset is purchased; in that case, the asset cannot be charged in the year of purchase but is subject to depreciation.