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Methods

Cash basis accounting

Cash basis accounting generally records income when received and expenses when paid.

Reviewed by the Booksmrt bookkeeping teamLast reviewed 2026-07-27

How it works in the books

The method is often easier to follow because activity tracks cash movement, but it can hide unpaid customer invoices and unpaid vendor bills. Tax eligibility and method changes can depend on the business and applicable rules.

Example

A December customer invoice paid in January is generally recorded as January income under the cash method.

What can go wrong

Do not switch methods casually. The IRS generally requires consistent treatment and may require approval for a method change.

Compare Cash basis accounting

Cash basis vs. accrual basis accountingCash basis is simpler and generally records receipts and payments when cash moves. Accrual basis records economic activity when earned or incurred, creating receivables and payables. Tax rules and reporting needs can limit the choice.

Sources

Educational information only. Booksmrt provides bookkeeping services, not tax, legal, audit, or investment advice. Confirm material accounting and tax decisions with the appropriate professional.