What is money accounting?

CASH ACCOUNTING is a specific method of accounting used on the balance sheet of some businesses. Cash accounting is often considered to be the simplest accounting method. It is an alternative to accrual accounting.

Usually work and/or goods are sold in business before receiving payment. For example, an individual could perform a contract and perform a service. It is usually not paid before the service is paid, but is paid according to the set schedule, as determined according to the conditions of employment.

Within the cash accounting system, an individual or business does not notice income until he actually receives the payment. This means that if a person sells 100 widgets or does 10 hours of work, money that is owed for widgets, and the work is not mentioned as an income in the balance sheet, nor is considered to be a taxable income at this stage. Instead, the money is listed as a due account.

When the payment is actually received, the money is charged. Monthly, annually and quarterly income is therefore forLoaded only on the actual salaries that have been received. When a person or company gives income tax, he asks for a loan or performs any other activity that requires to prove his / her income, then only reports the income he actually earned.

There are several benefits for cash accounting. First, it can be easier because the waiting payments may not be calculated with interest. With accrual accounting, the main alternative, money is expected to be earned as soon as it earns. This makes it difficult to monitor how much the real tangible cash that the person has received.

In addition, with accrual accounting, money is basically counted before they are paid. This can lead to problems unless complete payment is made. If, for exampleThe client will not pay him the money owed in full.

In addition to the income that is calculated only when receiving, the expenses are also deducted only if they are paid. Although a person or business may know that the rent is payable or that the purchase will be required, the costs are not listed in the balance sheet until the money actually goes out. This allows you to describe all tangible liquid assets in real time. Due to the simplicity of cash accounting, this is often a preferred method for small businesses.