Cash basis accounting is a method of accounting in which transactions are recorded when cash is received or paid. In other words, revenues are recorded when cash is received from customers, and expenses are recorded when cash is paid to suppliers or employees.Under cash basis accounting, the timing of the cash flow is the primary determinant of when transactions are recorded, regardless of when the actual goods or services were exchanged. This method is commonly used by small businesses, as it is relatively easy to understand and implement.One advantage of cash basis accounting is that it provides a clear picture of a company's cash flow. This can be useful for managing day-to-day operations and monitoring liquidity. However, it may not reflect the company's overall financial performance accurately, as it does not account for transactions that have been initiated but not yet completed, such as orders in progress or outstanding invoices.Cash basis accounting is not generally accepted under Generally Accepted Accounting Principles (GAAP) and is often used only for tax purposes or for small businesses with simple financial transactions. Most businesses use accrual basis accounting, which records transactions when they occur, regardless of when cash is exchanged.