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Definition

Cash-basis accounting

Cash-basis accounting is an alternative to the accrual basis refers to an accounting basis in which companies record revenue when they receive cash and an expense when they pay cash.

The cash basis seems appealing due to its simplicity, but it often produces misleading financial statements. It fails to record revenue that a company has earned but for which it has not received the cash. Also, it does to match expense with earned revenues. Cash-basis accounting is not in accordance with generally accepted accounting principles (GAAP).

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