Cash accounting is an accounting method where transactions are recorded only when cash changes hands. For ecommerce businesses, this means that revenue is recorded when payment is received, and expenses are recognized when they are paid. Cash accounting is simpler than accrual accounting and is often used by smaller businesses or those with less complex financials.
Cash accounting provides a more immediate and straightforward view of cash flow, making it easier to track day-to-day financials. However, this method may not provide an accurate picture of long-term profitability, as it does not account for sales made on credit or expenses incurred but not yet paid. While cash accounting is suitable for businesses with less inventory or smaller-scale operations, growing ecommerce businesses often transition to accrual accounting as this form of ecommerce accounting allows them to gain better insight into their financial health and performance.
Read our in-depth coverage of cash accounting.