Cash Accounting is the simplest and most straightforward form of accounting. Under this method, payments are recorded during the period in which they are received, and expenses are recorded in the period in which they are actually paid. In other words, revenues and expenses are recorded when cash is received and paid, respectively.This system is ideal for small businesses that don't have a lot of cash flow coming in and out throughout the year. It's also helpful for businesses that need to keep track of their spending on a monthly basis (rather than quarterly or yearly).There are some drawbacks to using cash accounting though. For one thing, it can be difficult to track your overall financial position if you're not keeping tabs on your receivables and payables separately. Additionally, since income isn't always realized immediately under this system, it can be harder to make long-term plans or projections based on your current revenue stream.
