What is Cash Basis of Accounting

Under Cash Basis of Accounting, as named indicates, all those Business Transactions are recorded only in the Journal of Business, where Cash is involved or in other words when Cash is received or paid by the business, then such Cash transactions are recorded and when cash is not received or paid, then Business Transactions are not recorded in the Journal of the business.

You May Also Find, “What is Accrual Basis of Accounting”

Such System is adopted by Professional Bodies like Accounting firms, Consulting Services Agencies and other firms that want to record Accounting Journal Entries Based on Cash Basis.

Example:- If Mr. A sold Goods For Cash Rs. 5000, then this is a Cash Transaction and here Cash is received by the business and goods are going from the business, so we record following Accounting Journal Entry:

                                                        Cash a/c    5000

                                                                     Sales a/c     5000

    (Goods Sold For Cash)

In the above Business Transaction, Cash, as a Current Asset, is receiving by the business, so we credit it and Sales is a Revenue that is also increasing as goods are going from the business, so we Credit it.

So, we can say that Cash Basis of Accounting System is applied for Cash Transactions of Receipts And Payments.