Q: When might an accountant use cash basis accounting without violating generally accepted accounting principles?
A: In cash-basis accounting, companies record expenses in financial accounts when the cash is actually laid out, and they book revenue when they actually hold the cash in their hot little hands or, more likely, in a bank account. [ For example, if a painter completed a project on December 30, 2003, but doesn't get paid for it until the owner inspects it on January 10, 2004, the painter reports
those cash earnings on her 2004 tax report. In cash-basis accounting, cash earnings include checks, credit-card receipts, or any other form of revenue from customers.
Smaller companies that haven't formally incorporated and most sole proprietors use cash-basis accounting because the system is easier for them to use on their own, meaning they don't have to hire a large accounting staff. source: accounting for dummies ]
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