Cash Basis Accounting

An accounting method that records revenue when cash is received and expenses when cash is paid, regardless of when the underlying transaction occurred.

Cash basis accounting is simpler and closer to real cash flow reality, making it popular with small businesses and sole traders. It is easier to manage but can distort profitability over periods where payments are delayed.

A freelance founder using cash basis accounting records income from a client project the week the payment clears her bank account, not when she completed the work or sent the invoice.