Why use cash accounting?

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Is it permitted for companies to use cash basis accounting? Why would a company choose to use cash basis accounting instead of accruals accounting?

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score 0 · Answer 1 · 2012-12-02T19:24:40+00:00

Remember that under cash accounting, profit and expenses are recognized when received or paid regardless of the period to which they relate.

For example, if you have sold an annual magazine subscription in March (with June year end) and you have received $120 while the cost of sales is 60, under cash accounting you have:

Revenue 120
COS (60)

Profit (60)