Cash basis method

The cash method is an accounting method in which income and expenses are recorded only when an actual receipt or payment occurs.

In other words:

• income exists when the money comes in
• an expense exists when the money goes out
• Issued or received invoices are not recorded until they are paid.

This method directly reflects the actual liquidity of the business.

Who the cash method is suitable for

The cash method is particularly suitable for:

• Micro-enterprises
• Self-employed workers
• Professionals
• Businesses with few clients and suppliers
• Businesses with fast payments
• Those who want to mainly monitor liquidity

How the cash method works in practice

With the cash method, accounting mainly follows the bank account (or cash register):

• You receive a payment → you record income
• You pay an expense → you record a cost
• If there is no cash movement → there is no entry

During the year:

• there are no receivables from clients
• there are no payables to suppliers
• the economic result coincides with the cash flow

What it shows well

• Available liquidity
• How much you have actually received
• How much you have actually paid
• The business’s ability to sustain outflows

It is particularly useful for daily monitoring of the financial situation.

What it does not show

• Invoices issued but not yet received
• Invoices received but not yet paid
• Revenues and costs that have accrued but are not yet settled

The cash method does not provide a complete view of the economic situation, but gives a very clear picture of the financial situation.

Advantages of the cash method 

The cash method is appreciated for its operational simplicity. The main advantages are:

• Easy to manage
  You only record what has been paid or received.
• Immediate control of liquidity
  You always know how much money is actually available.
• Less administrative work
  You don’t need to record all invoices during the year.
• Aligned with digital payments
  Bank transfers, cards, and electronic payments become the basis of accounting.

Limitations of the cash method

The cash method also has structural limitations, which are important to understand.

The main ones are:

• No view of receivables and payables
  You don’t see how much you have to receive or pay in the future.
• Partial economic result
  Revenues and expenses are tied to payments, not to their accrual.
• Limited comparability over time
  The result can vary greatly depending on the timing of receipts and payments. 

For this reason, the cash method alone is not always sufficient for economic analysis or formal financial statements.

It is less suitable for:

• structured companies
• businesses with many receivables and payables
• companies that need to present full financial statements during the year

The cash method in Banana Accounting

With Banana Accounting, the cash method is easy to apply because the program naturally works based on bank transactions.

With Banana you can:

• Import transactions from your e-banking
• Automatically record receipts and payments
• Keep the balance sheet and income statement constantly updated
• Monitor liquidity in real time

During the year you work lightly, without having to record every invoice.

Tax aspects of cash-based accounting

Cash-based accounting is allowed only under specific tax requirements.

In Switzerland:

• it is reserved for companies with annual turnover below 5 million Swiss francs
• authorization from the FTA is required
• the request must be made at the start of the activity or later

Tax rules on the use of the cash method vary by country, especially regarding VAT. It is always advisable to consult local regulations or official tax guides.

In summary

The cash method is:

• simple
• immediate
• liquidity-oriented

It is ideal for getting started and managing day-to-day operations, but it shows its limits when a complete economic view is needed.

With Banana Accounting, you can use the cash method today and easily switch to a more complete approach when needed.