Cash accounting — also called cash-basis accounting — records transactions only when money actually changes hands. Revenue is recognized when cash comes in, and expenses are recorded when cash goes out.
For example, if you send an invoice for $10,000 in December but the customer pays in January, cash accounting records the revenue in January — when the cash arrives. Accrual accounting would record it in December when the sale was made.
Cash accounting is simpler and gives a clear picture of actual cash flow. It is commonly used by small businesses and freelancers. However, larger companies are required to use accrual accounting for more accurate financial reporting.