Cash Basis Accounting
Updated 2026-08-22
INTRODUCTION
English translation pending.
CORE DEFINITION
Cash basis accounting records transactions at the moment cash changes hands: revenue when payment arrives and expense when payment is made, ignoring receivables, payables, accruals, and depreciation. It is the counterpart of accrual accounting, which recognizes revenue and expense when the underlying obligation arises. The core claim is that the cash view answers a question accrual statements can obscure: whether the entity can actually meet its obligations, since a profitable company can still run out of money. The qualification is that the cash view hides commitments already incurred, so a large inflow of advance payments can make solvency look better than it is.
SCAFFOLDING EFFECT
Reduce cognitive load
- Track the money: record every cash receipt as revenue and every payment as expense. - Skip the accruals: leave out receivables, payables, and depreciation when producing the cash view. - Test survival: use net cash flow to judge whether the obligations can be met.
Anchor fast decisions
Profit is an accounting construct that matches revenue to the period in which it was earned, which is not the period in which cash arrives. A business can therefore report profit while its bank balance falls, because sales sit in receivables while costs are paid. Recording cash movements directly removes that gap and answers the survival question without adjustment. The cost is the loss of matching, since expenses paid this period may relate to revenue earned later, which is why the cash view alone cannot show whether operations are profitable.
MINIMUM ACTION
In progress 0/1Practice this model in one real situation:
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Source support: Explicit
- zh.wikipedia.orghttps://zh.wikipedia.org/wiki/%E6%A6%82%E5%BF%B5%E6%A1%86%E6%9E%B6verified
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