Cash Basis Accounting Pittsburgh, PA

Cash Basis Accounting

Cash flows and cash position are basic to cash accounting. When cash is received, revenue is recorded. Expense is noted when cash is paid out. In this type of accounting revenues and expenses are called cash receipts and cash payments. Cash basis accounting does not include expectations to receive cash or promises to pay such as receivables, payables and prepaid or accrued expenses.

This type of accounting is practical for entities that do not have large numbers of transactions or when the time between the transaction and receipt of cash is short. Two forms of cash-based accounting are “strict” and “modified”. Strict, as the name signifies, tracks the cash flow exactly.  Modified has elements from accrual-based accounting such as property and inventory capitalization.

Because cash basis accounting is generally not used by entities that make public reports. Most countries require accrual-based statements because they provide a truer representation of the company’s financial position.