Cash Basis

"Show me the money!" Jerry McGuire. See it. Cruise at his best. Okay, okay...So...Some days, it seems that cold, hard cash is the only reliable way to keep track of revenue and expenses. "Cash basis" refers to an accounting method where a company does not claim revenue until actual payments are received from a customer.

The procedure is different from the "accrual" method where you can claim the revenue once the product is shipped from your warehouse or the service is provided. This policy also holds true for expenses. Under a cash basis, you would only record the expense once you issue a check to pay a bill. With the accrual method, you would record the expense as soon as you receive the product or service, but you haven't paid for it yet.

You might think the cash basis accounting presents a more realistic view of a company's financials. But picture Cash is King, Inc., which has lots of cash on hand, but their payables (money they owe) far exceed the amount of cash. In this case, the accrual method presents a far more accurate picture of the profitability of the company. So we ask: why isn't there a sequel tagged, "Show me the credit!" Why not? Tom? Is anyone working on this?