Word of the Week 'Cash Basis'

Cash Basis Accounting Definition

Short Definition When using this method of record-keeping, the business owner reports income when it is actually received and expenses when they are actually paid. This is the most commonly used method of accounting and provides the easiest system to follow.

Expanded Definition Operating under the cash method of accounting, income is recorded when payment is received from customers. Expenses are recorded as funds are paid to vendors. The cash basis of accounting is the most common method of reporting income and expenses. This method can be used by businesses that do not have an inventory of products available to sell.

Nearly all small businesses should use cash basis accounting unless they receive payment prior to paying for goods.