The Complete Idiot's Guide® To Accounting

Accounting for the Cash

The first decision a small business owner must make before setting up an accounting system is whether to operate the business on a cash basis or accrual basis. Basically, these methods affect how you record your transactions as well as when you add transactions to your accounts.

DEFINITION

Cash-basis accounting is based on cash flow. You report expenses when you lay out the cash. You report income when cash is received. In addition to hard cash, income is counted as received when you get a check, credit card payment, or any other method common in your business. The same is true for expenses—whether you pay them by cash, ...