What is cash accounting?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
Cash accounting records income when payment is received and expenses when they are paid, rather than when an invoice is sent or a bill arrives. It is simple and shows the cash a business has, but it does not show money owed to the business or money it owes.
With cash accounting, the books follow the bank account. An invoice sent on Tuesday and paid on Thursday is recorded on Thursday.
Because unpaid invoices and bills are not in the books, they have to be tracked separately to know what customers owe and what the business owes its suppliers.
In Australia
business.gov.au's guide to cash and accrual accounting says cash accounting is a simple system that suits smaller businesses with mostly cash transactions, such as a hairdresser or a grocery store, and gives a picture of how much money is in the till and the bank.
It also points out the limitation: cash accounting doesn't show money owed to you or money you owe to others.
Common mistakes
- Forgetting unpaid supplier bills because they are not in the books yet.
- Losing track of unpaid invoices, because nothing in the books shows them until they are paid.
Related terms
Sources
- Choose between cash and accrual accounting
business.gov.au, Australian Government. Current at 15 October 2026, released 13 September 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.