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What is Cash Accounting?

Cash Accounting is the accounting method where only finalized transactions are documented.

Larger, publicly traded companies are actually not allowed to use Cash Accounting because it can’t keep up with all the Payable, Receivables, and so forth that large companies have to keep on their books.

Instead, larger companies are required by the SEC to use Accrual Accounting, which makes ledger entries for cash that has not yet be paid or received, among other things.

Cash accounting makes sense for smaller business where no credit purchases or financing is used, but all transactions are settled instantaneously.

Keywords: Securities and Exchange Commission (SEC), accounts payable, accounts receivable, accrual accounting, accounting methods,