Accrual vs Cash Accounting
Written by Aparna Devalla, CPA
Curated by Rubric Financial
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Cash Basis Explained
- Cash basis accounting records revenue when cash is received and expenses when cash is paid out, regardless of when the work was performed.
- It is simple to maintain and works well for very early-stage startups with straightforward transactions and no deferred revenue.
- The IRS allows businesses with less than $29 million in average annual gross receipts to use cash basis for tax purposes.
- The major limitation is that cash basis can create a misleading picture of financial health, especially for companies with annual contracts or significant prepaid expenses.
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