What is the cash method of accounting?

The cash method of accounting is characterized by the recognition of income when cash, property, or services are actually received. This method is often favored by small businesses and individuals due to its simplicity and straightforwardness. Under the cash method, income is not recorded when it is earned (as in the accrual method), but rather when the payment is physically received, allowing for a direct view of cash flow.

This means that a business does not recognize revenue until the payment is received, which helps in managing cash flow more effectively. For deductions, expenses are recorded when they are paid, rather than when they are incurred. This aligns well with businesses that primarily deal in cash transactions, as it mirrors the timing of cash exchanges.

The other choices reflect different principles or methods that are not representative of the cash method. For instance, recognizing income when it is earned pertains to the accrual method, while deferring income until the accounting period's end does not apply to the cash method either, as cash basis accounting focuses on actual cash transactions. Additionally, while the cash method does focus on cash transactions, stating that it "only accounts for cash transactions" is misleading, as it also includes property and services received in the recognition of income.