Cash Basis Accounting Definition – What is Cash Basis Accounting?

Accounting Glossary v

Cash basis definition including break down of areas in the definition. Analyzing the definition of key term often provides more insight about concepts. The term cash basis can be defined as: Accounting system that recognizes revenues when cash is received and records expenses when cash is paid. Cash basis accounting can be contrasted with the accrual basis of accounting, cash basis simplifying the accrual basis by recognizing revenue when cash is received rather than when it is earned and expenses when cash is paid rather than when incurred. The cash method is not generally as accurate or useful when comparing performance over time because the timing of revenue recognition and cash recognition can be distorted if the time of actual occurrence is substantially different then the time cash is received or paid. The cash basis DOES NOT report the cash account any more accurately then the accrual basis, both reporting the exact same amount in cash at any given time. This can be deceiving considering the name, cash basis, but the reason we use the term cash basis is because we use cash as a basis to estimate when revenue has been earned and when expenses incurred. Also important to note that cash is not equal to revenue.