CASH BASIS Meaning and
Definition
-
Cash basis refers to a method of accounting where revenue and expenses are recognized only when cash is received or paid, respectively. In other words, it is a system that records transactions based on the actual inflow and outflow of cash rather than when revenue is earned or expenses are incurred.
Under the cash basis, revenue is recognized when cash is received from customers, regardless of when the goods or services were actually provided. Similarly, expenses are recognized when cash is paid, regardless of when the goods or services were received.
This accounting method is relatively simple compared to the accrual basis and is commonly used by small businesses or individuals who do not have complex financial transactions. It provides a clear and immediate snapshot of the company's cash flow.
One of the advantages of the cash basis is that it eliminates the complexities associated with tracking accounts receivable and accounts payable. However, it may not accurately reflect the financial position of a company since it does not consider accrued revenue or expenses. Therefore, it may not be suitable for businesses that need to prepare comprehensive financial statements or adhere to Generally Accepted Accounting Principles (GAAP).
Overall, the cash basis provides a straightforward and easy-to-understand approach to accounting, focusing solely on the actual cash flows of a business.
Common Misspellings for CASH BASIS
- xash basis
- vash basis
- fash basis
- dash basis
- czsh basis
- cssh basis
- cwsh basis
- cqsh basis
- caah basis
- cazh basis
- caxh basis
- cadh basis
- caeh basis
- cawh basis
- casg basis
- casb basis
- casn basis
- casj basis
- casu basis
Etymology of CASH BASIS
The word "cash" comes from the Middle French word "caisse", which means "money box" or "cash register". It originated from the Latin word "capsa", which also means "box".
The word "basis" comes from the Latin word "basis", which means "foundation" or "support".
When these two words are combined, "cash basis" refers to a method of accounting where transactions are recorded as they are received in cash or paid out in cash, rather than when they are incurred or earned. The term "cash basis" was likely coined to describe this accounting method, emphasizing the use of cash as the basis or foundation for recording financial transactions.
