What is a Cash Basis? Definition or Meaning

If you are keeping track on a cash basis, you are reporting revenue on your income statement when the cash is received from customers, rather than when the money is actually earned by your business. Likewise with payments, keeping record on a cash basis happens when the money is actually paid, not when the expense is actually incurred.

For example…

Think of your accounting as a piggy bank! How much money is in there right at this moment? As a very small business this is how you are most likely to track your finances, by reporting on accounts paid as the money comes in from clients and on the bills paid as they leave your account. Larger businesses may instead report money as having been received when the invoice is issued. Bills are recognised as expenses when invoices are received rather than paid.