cash-based accounting

Cash-based accounting records sales and expenses when cash is actually received or used. Cash accounting is used by individuals to manage their finances. When a person spends money on products, the cash transaction is recorded immediately, even if the product is one that will last several years—such as a dishwasher or a sofa. In comparison to accrual accounting, which firms use on financial statements to record revenues and expenses when they are recognized, cash-based accounting is better at tracking cash flows.