In cash-based accounting, when is revenue recognized?

In cash-based accounting, revenue is recognized when cash is received, which typically means when the cash is deposited into the business bank account. This approach focuses purely on cash transactions and ensures that income is only recorded when actual payment has been made.

This method contrasts with accrual accounting, where revenue is recognized when it is earned, regardless of when payment is received. Thus, in cash-based accounting, the timing of the revenue recognition is directly tied to the cash flow, reinforcing the idea that income is only considered as such once it has physically entered the business.

Recognizing revenue upon cash deposit helps businesses maintain a clear understanding of their cash position, making it easier to manage day-to-day operations and obligations.