Cash Basis

A major accounting method that recognizes revenues and expenses at the time physical cash is actually received or paid out. This contrasts to the other major accounting method, accrual accounting, which requires income to be recognized in a company's books at the time the revenue is earned (but not necessarily received) and records expenses when liabilities are incurred (but not necessarily paid for).

Investopedia Says:
When transactions are recorded on a cash basis, they affect a company's books only once a completed exchange of value has occurred; therefore, cash basis accounting is less accurate than accrual accounting in the short term.

For example, let's say a construction company secures a major contract in a given year, but will only be paid for its efforts upon completion of the project. Using cash basis accounting, the company will only be able to recognize the revenue from its project at its completion, while it will record the project's expenses as they are being paid out. If the project's time span is greater than one year, the company's income statements will be misleading: the company will incur large losses one year and then great gains the next.

Cash basis accounting is simpler and cheaper to perform than accrual accounting, but it can make obtaining financing more difficult due to its inaccuracy.

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Accounting: method that recognizes revenues when cash is received and recognizes expenses when cash is paid out. In contrast, the accrual method recognizes revenues when goods or services are sold and recognizes expenses when obligations are incurred. A third method, called modified cash basis, uses accrual accounting for long-term assets and is the basis usually referred to when the term cash basis is used.

Series EE Savings Bonds: paying the entire tax on these bonds when they mature. The alternative is to prorate the tax each year until the bonds mature.

A method of accounting that considers only money actually received as income and only money actually paid out as expense.

For income tax purposes, taxable income is computed under cash basis accounting as the difference between income received and expenses paid out within the tax year.

Cash basis accounting is not the same as accrual basis accounting.