Under cash basis accounting, when are expenses recorded?

Under cash basis accounting, expenses are recorded when they are paid. This approach emphasizes the actual cash inflows and outflows of a business, which means that expenses are recognized only when cash has been exchanged. For instance, if a company pays its utility bill, the expense is recorded at that moment, regardless of when the service was actually provided.

This method contrasts with accrual accounting, where expenses are recognized when they are incurred, regardless of when payment occurs. This difference is essential for understanding cash flow management and how financial positions are evaluated under different accounting systems. By focusing solely on cash transactions, businesses using cash basis accounting can easily maintain clarity regarding their liquidity and available funds, but they may miss insights regarding expenses that have been incurred but not yet paid.