Definition
Cash basis accounting records revenue when payment is actually received and expenses when they are actually paid. An invoice has no effect on the books until the client pays it. Cash basis is simple and popular with freelancers and small businesses, and is permitted for tax purposes in many countries below certain revenue thresholds.
Also called: Cash accounting
Cash basis in practice
Under cash basis your records mirror your bank balance closely, which makes tax time easier, but they do not show money owed to you. Keep an invoice list separately so outstanding receivables are still visible.
Frequently Asked Questions
Which is better for freelancers, cash or accrual?
Most freelancers start with cash basis for simplicity. Switch to accrual as the business grows, takes on larger projects, or needs financial statements for lenders or investors.