Cash accounting

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 are recorded when payment is made. Assets and liabilities are generally not recorded; everything is treated as a revenue or expense item.

A hybrid form of cash accounting, called "modified cash accounting" (also called "modified accrual accounting"), is used in many cases. It generally works the same as cash accounting except for two major areas: long-term assets are capitalized and subject to depreciation or amortization, and long-term liabilities are recorded as debt and reduced as payments are made.