Cash Method
From ForcaWiki, the simple encyclopedia
| In one sentence | An accounting approach that only counts money as earned or spent once it is actually paid or received. |
|---|---|
| Category | Finance |
| Related | Accrual Method, Revenue, Costs |
Imagine you only wrote money down in your allowance notebook the moment it actually landed in your hand, ignoring any promises of money that was coming later. That is the whole idea behind the cash method.
The cash method is an accounting approach that records income and expenses only when cash is actually paid or received, rather than whenever it was earned or owed. This is the opposite of the Accrual Method, which counts money the moment it is owed, even before it physically arrives.
Fun facts
- The cash method is simple and easy to follow, which is part of why many very small businesses and individuals use it.
- Bigger companies, including movie studios, typically cannot use the cash method for their official books, and must use the accrual method instead.
- Under the cash method, a business can look like it earned nothing in a month, even if it did a ton of work, simply because none of the checks have arrived yet.