In cash basis accounting, when is income recognized?

In cash basis accounting, income is recognized when cash is received. This accounting method focuses on the actual flow of cash in and out of a business, meaning that transactions are recorded only when money changes hands. This approach contrasts with accrual accounting, where income is recognized when earned, regardless of when the payment is received.

By adhering to the cash basis, an organization may have a clearer view of its cash position at any given moment, as it reflects real inflows of cash rather than anticipated income that may not be collected yet. This method is often simpler and more straightforward, making it a preferred practice for small businesses and individual taxpayers who may not require the more complex accounting practices associated with the accrual method.