When is revenue recognized under cash basis accounting?

Revenue is recognized under cash basis accounting when the associated cash is received. This method focuses on cash transactions, meaning that revenue is only recorded when payment is actually received from customers, not when a sale is made or a service is rendered. This approach contrasts with accrual accounting, where revenue is recognized when it is earned, regardless of when cash is received.

Recognizing revenue upon receipt of cash helps businesses monitor their actual cash flow, which is crucial for managing liquidity. For example, a company that sells a product on credit would not recognize revenue until the customer pays, reflecting the true financial position of the business in terms of available cash. This distinction is significant for small businesses or those that rely heavily on actual cash to operate, as it provides a straightforward view of income based on cash inflows.