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Cash Accounting

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Cash Accounting
A system of accounting that recognizes revenue and expenses in the order in which they are received or made. For example, if a company receives $200 in revenue on Tuesday, it must record $200 in revenue on Tuesday. Cash accounting contrasts with accrual accounting, which matches expenses with the revenue it generates, regardless of when each one occurs. Cash accounting can result in a different tax liability from accrual accounting. For this reason, regulations require different companies to use different accounting methods; for example, companies carrying inventory are not allowed to use the cash accounting method.


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Measuring household income from defined benefit plans by actual contributions from employers plus actual investment income on plan assets can be considered a cash accounting approach to measuring these plans' transactions.
Businesses can gain substantial cash benefits by adopting special VAT schemes such as Cash Accounting and Flat Rate schemes.
The switch from cash accounting to accrual accounting--which determines revenues and expenses when a debt is incurred rather than after a payment is made--will take two years to fully adopt, he said.
 
 
 
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