What Is Cash Accounting?

By QuickBooks Canada Team

0 min read

There are two types of accounting used in business: cash accounting and accrual accounting. Cash accounting (also known as cash-basis accounting) requires that a company records sales when it receives actual invoice payments from customers and that the company records its expenses when it makes payments to suppliers. Small businesses often use cash accounting because it is simple and provides a clear picture of how much money is actually available.

For example, imagine that your business receives a $100 payment in October from a customer who, according to your invoice terms, has 30 days to pay. In cash accounting, you would have recorded the sale in accounts receivable in September, when it occurred. You’d debit the money in October, because it was actually received.

In accrual accounting, revenue and expenses are recorded when they are incurred. Corporations are required to use accrual accounting under generally accepted accounting principles.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

Related Articles

Tips for Accountants to Consider When Managing Their Accounting Practice Finances

If you’re an accountant with your own practice, you also have to…

Read more

What Are Accruals?

For most small-business owners and independent contractors, the Canada Revenue Agency requires…

Read more