What is a primary feature of cash basis accounting that differentiates it from accrual accounting?

The primary feature of cash basis accounting that sets it apart from accrual accounting is that income is recognized only when cash is actually received. This method of accounting tracks cash flow directly, meaning that transactions are recorded at the time money changes hands. For example, if a service is provided but payment is received later, under cash basis accounting, the income is not recognized until the payment is received.

This approach contrasts with accrual accounting, which recognizes income when it is earned, regardless of whether cash has been exchanged. Cash basis accounting is simpler and often preferred by small businesses or individuals who need to manage their cash flow closely, as it provides a clear picture of actual cash on hand.

Other features associated with cash basis accounting include not recognizing certain expenses until they are paid, rather than when they are invoiced, and a focus more on immediate cash flow than on long-term financial projections. Additionally, cash basis accounting does not require formal approval processes for income recognition, making it more flexible in terms of when transactions are recorded.