Definition
The cash basis principle is an accounting principle by which transactions are recorded at the moment when payment or receipt occurs.
Further information
For example, in the case of the sale of goods, the transaction would be recorded at the moment the payment/receipt is made (even if the ownership of the good changes before or after that moment)
Another example would be a company that acquires a bond that pays interest annually. According to the cash basis of accounting, the company only recognizes the interest in its accounting records when the actual payment is received at the end of the year. This means that interest income is recorded in the financial statements only in the period in which the cash is received, not when it is earned.
Related concepts
Update date: May 2025
