Cash Accounting Method

The cash accounting method records income and expenses only when money actually changes hands—when you receive payment or make a payment. This approach provides a straightforward view of cash flow, making it easier to see how much cash is available at any given time. It is commonly used by small businesses because of its simplicity, as it ignores outstanding invoices or bills until they are settled. However, it doesn't always reflect the true financial position, especially if there are significant receivables or payables.