Cash Basis
Cash-basis bookkeeping records income and expenses only when money actually arrives in or leaves an account, rather than when it's earned or owed.
In short
Money counts when it moves, not before. A $2,000 invoice isn't income yet under cash basis — it's income the day the customer actually pays. Importing and categorizing bank transactions, BalanceMCP's natural workflow, is inherently close to cash basis unless Accounts Receivable or Payable get involved.
Also called: cash-basis accounting, cash-basis bookkeeping
Cash-basis bookkeeping ties every recognized event to an actual movement of money. An expense counts the day it's paid, not the day a bill arrives; income counts the day a payment lands in the bank, not the day an invoice is sent. It's the simpler of the two common bases, and it maps naturally onto the most basic bookkeeping workflow there is: import a bank statement, categorize what happened.
That natural fit is exactly why BalanceMCP's default workflow sits close to cash basis without anyone having to declare it. Every bank transaction already represents real money moving, so categorizing it straightforwardly reflects cash-basis timing — no invoicing step, no accrual, just recorded activity tied to an actual deposit or withdrawal.
The moment Accounts Receivable or Accounts Payable enter the picture — recording an invoice before it's paid, or a bill before it's settled — an accrual element gets layered on top, and the books stop being purely cash basis. That's not wrong; it's just a different, common combination, and it's worth knowing which one a given book is actually doing when a report doesn't match what's in the bank.
Whether cash basis is the right choice for taxes is genuinely situation-dependent — it depends on business size, structure, and jurisdiction, and it's a real question for an accountant rather than something to assume works for everyone the same way.
What people get wrong
- Assuming importing bank transactions guarantees pure cash-basis bookkeeping forever — using Accounts Receivable or Payable on top of it introduces accrual elements.
- Assuming cash basis is automatically simpler or better for tax purposes without confirming with an accountant.
- Confusing cash basis with cash flow — cash basis is a recognition timing rule for the books; cash flow is the actual money moving through the bank right now.
Common questions
- Is BalanceMCP always cash-basis?
- Its natural workflow — importing and categorizing bank transactions — is close to cash basis by default, but using Accounts Receivable or Accounts Payable introduces accrual elements on top of it.
- Is cash basis simpler than accrual for taxes?
- Often, but whether it's the right or allowed basis for your specific situation depends on your business structure and size — ask your accountant rather than assuming.
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