Cash-basis accounting records revenues and expenses when cash is actually received or paid. It contrasts with accrual accounting, which recognizes revenues and expenses when they are incurred, regardless of cash flow.
5 Must Know Facts For Your Next Test
Cash-basis accounting is simpler but less accurate for matching revenues with expenses.
This method does not conform to Generally Accepted Accounting Principles (GAAP).
It can be useful for small businesses with straightforward financial activities.
Cash-basis accounting can distort the true financial position of a company because it doesn't account for accounts receivable or payable.
It may not provide an accurate measure of liquidity since it ignores outstanding obligations and future income.