Cash Cost

Cash cost is part of cash-basis accounting...that is, accounting for cash expenses and purchases in ledgers, as they occur. This sounds simple enough, but it gets tricky when the business also uses credit, as most do. This ledger does not add those credit purchases until the cash moves (the check is cashed).

Ever try to balance a checkbook? Probably not. Ask your grandparents about their checkbook-balancing war stories. It's tough. There's often several outstanding checks and you need to try to figure out which are still out there, uncashed...It's hard to keep track of.

Probably for that reason, and just general ease, most companies now use the accrual method. The accrual method recognizes both cash and credit, and expenses and revenue, as they happen, and matches them using the matching principle. This way, the business isn't issuing checks and waiting to record them until...well, until whoever has them cashes them.

Just imagine, if Harry Potter sent a check in the mail, and the owl got lost, and it takes 3 months of correspondence to realize it's been lost...that's 3 months the check can't be added. Birds, right?