Cash Basis Law and Legal Definition

Cash basis is the accounting method of recording sales and expenses only when cash is actually received or paid out, as opposed to accrual basis. Generally cash basis bookkeeping is simpler than accrual basis bookkeeping, but makes securing financing more difficult. It also called cash method of accounting.

On a cash-basis, revenues are recognized when cash is received and deposited. Expenses are recorded in the accounting period when bills are paid. The cash basis method allows deductions for expenses to be taken in the year paid and reporting of income in the year received. For businesses, however, where merchandise is an income-producing factor, the IRS strongly favors the “accrual method.