Cash Basis of Accounting Law and Legal Definition

This is an accounting method in which income is recorded when cash is received, and expenses are recorded when cash is paid out. Cash basis accounting is not considered as a good management tool because it leaves a time gap between recording the cause of an action (sale or purchase) and its result (payment or receipt of money). However, this method is simpler than the accrual basis accounting and quite suitable for very small firms which transact business mainly in cash.