Glossary
Accounting Basics

Cash Basis

By: Alec Hollingsworth
Updated:  
June 2, 2025

DEFINITION:

Cash basis accounting records income and expenses only when cash is received or paid, not when transactions are incurred.
Cash basis accounting is a simple method where revenues and expenses are recorded only when cash is actually received or paid. Unlike accrual accounting, which records transactions when they are incurred regardless of payment, cash basis provides a straightforward view of cash flow. This method is often used by small nonprofits or organizations with limited financial activity because it is easier to implement and understand. However, it may not accurately reflect the financial position of an organization if there are significant unpaid bills or receivables at period-end. Organizations using cash basis should be aware that their statements might not comply with Generally Accepted Accounting Principles (GAAP).

Key Takeaways

  • Records transactions only when cash changes hands
  • Simple and easy to use for small organizations
  • May not reflect true financial position if receivables or payables exist

Why It Matters

Cash basis is easy to use and offers clear insight into actual cash flow, making it popular among small nonprofits.

Real World Example

A small animal rescue nonprofit receives a $1,000 donation pledge in December but does not actually receive the money until January. Using cash basis accounting, the organization records the donation as income in January, when the cash is received, not when the pledge is made. Similarly, if the nonprofit incurs a $500 veterinary bill in December but pays it in January, the expense is recorded in January. This method gives the organization a clear view of its available cash, but it may not show outstanding obligations or income that has been promised but not yet received.

How Aplos Helps

Aplos allows users to select cash basis accounting for their nonprofit organization, simplifying bookkeeping and financial reports. Users can easily switch between cash and accrual reporting within the Aplos platform to meet their reporting needs.
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Frequently Asked Questions

What is cash basis accounting?

Cash basis accounting records income and expenses only when cash is received or paid, making it a straightforward method for many nonprofits.

Who should use cash basis accounting?

Cash basis is best for small nonprofits or organizations with simple transactions and limited resources, where tracking actual cash flow is crucial.

How does cash basis differ from accrual basis?

Unlike accrual basis, which records transactions when they are incurred, cash basis only records them when cash changes hands.

Does Aplos support cash basis accounting?

Yes, Aplos enables users to set up and manage their books on a cash basis and can generate reports using either cash or accrual methods.

Related Terms

Journal Entry
Deferred Revenue
Recurring Donation
Interfund Transfer
Minister’s Housing Allowance
Chart of Accounts

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