Cash accounting example
Because cash accounting records revenue when money is received and expenses when money is paid out, it doesn’t record payables and receivables like accrual accounting does. Instead, transactions are simply recorded as revenue or expenses on a business’ books.
Example:
Let's say you run a business that sells gym equipment. If you sell R2,000 worth of gym equipment, under the cash accounting method, that amount will only be recorded as a revenue on your books when the customer’s payment hits your bank account.
The same concept applies to expenses. If the company receives a utilities bill for R500, under the cash method, the expense will only be recorded when the company pays the bill.
Conversely, under the accrual accounting method, the R2,000 would be recorded as revenue on the day the sale is made, even though you might not receive the money for days, weeks, or even months. The R500 bill would also be recorded as an expense on the day the company receives the bill, even if payment isn’t due for a while.