Which method of accounting records income and expenses when they are received or paid?

The cash method of accounting records income and expenses at the time when cash is actually received or paid out, rather than when the income is earned or expenses are incurred. This means that transactions are logged only when money changes hands. This approach provides a straightforward way to track cash flow, as it mirrors the actual cash situation of the business at any given time.

For businesses, especially small ones, this method is often simpler to implement and maintain compared to the accrual method, which recognizes income and expenses when they are earned or incurred, regardless of when cash is exchanged. Therefore, the cash method is particularly valuable for entities focused on their liquidity and immediate financial position.