Question

What is cash only accounting and what records do you need to keep for it?

NO HAND WRITTEN ANSWERS PLEASE

Answer 1

This is cash-basis accounting, where all sorts of cash transactions are considered to be recorded in accounts; credit transactions are not recorded. This is not like accrual-basis where revenue is recorded as earned and payment is recorded as incurred. In cash-basis revenues are recorded as cash-received and expenses are recorded as cash-paid.

An example is taken for understanding. Suppose a tax-consultant gives tax service to his clients for a total sum of money $55,000; out of this he receives during the period in cash of $32,000; therefore, he has to record $32,000 as his revenue earning during this period. The remaining sum of money (55,000 – 32,000 =) $23,000 although earned but can’t be recorded, since it is due but not received; this should be recorded in coming years as its respective receiving.