Cash accounting

Recording revenue when money arrives and costs when money leaves.

Example

You invoice in March and get paid in May — under cash accounting, it is May revenue.

Important

Simple, and it makes your books match your bank. It also makes a great month look terrible if a customer pays late, which is why it is a poor basis for judging performance.

Related terms

• Accrual accounting — Recording revenue when it is earned and costs when they are incurred, regardless of when the money moves.
• Cash flow — The actual movement of money in and out of your bank account, as distinct from revenue you have earned but not been paid.
• Bookkeeping — Recording every transaction accurately and on time.
• Income statement (P&L) — A statement of revenue, costs and profit over a period. Revenue − COGS = gross profit; gross profit − OpEx = operating profit.

Lessons that explain it

• Cash or accrual — the choice that changes every number — The same month can be your best or your worst depending on which basis you use. What each one shows, and why you need to be able to read both. (12 min)

All 176 terms in the Founder glossary