Cash Basis Accounting: Keeping It Simple and Straightforward

For small businesses and solopreneurs, cash basis accounting can be a practical way to manage your finances. Unlike accrual accounting, where you record income when it’s earned and expenses when they’re incurred, cash basis only records transactions when money actually moves.

Here’s a closer look:

🔹 Recording Income
Revenue is recognized only when you receive payment. That means if you send an invoice today but don’t get paid until next month, the income shows up in your books next month—when the cash hits your account.

🔹 Recording Expenses
Expenses are logged only when you pay them. Whether it’s a supplier invoice or a utility bill, the cost is recorded at the time of payment, not when you receive the bill.

🔹 Why It Works
Cash basis accounting is ideal if you:

• Run a small, service-based business

• Don’t carry inventory

• Want a simple, low-maintenance bookkeeping system

• Prefer to track actual cash flow rather than estimates

🔹 Limitations to Keep in Mind
While cash basis is straightforward, it doesn’t always give a full picture of your business’s financial health. You won’t see income you’ve earned but haven’t been paid yet, or expenses you’ve incurred but haven’t paid. For growing businesses or those seeking investors, accrual accounting may provide a more accurate snapshot.

I hope this helps someone. Feel free to reach out if you have any questions.