Cash basis accounting
Cash basis accounting records revenue only when cash is received and expenses only when cash is paid, with no regard for when the economic event occurred.
Also known ascash accounting
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A side-by-side table traces the same €10,000 project — completed in December, paid in January — under two accounting methods. Under the cash basis, December records €0 and January records €10,000 when cash arrives; under the accrual basis, December records €10,000 when the work is completed and January records nothing, because the earnings event already occurred.
Where it fits
SubjectFinancial AccountingCoreTopicAccrual Accounting & RecognitionCore
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PracticeCORE
A catering company provides services worth €9,000 in November but is not paid until January. Under cash-basis accounting, in which period is the €9,000 recorded as revenue?
Select an answer to check your understanding.