kassamenetelmä

Kassamenetelmä, often translated as "cash method" or "cash basis accounting," is an accounting principle where revenue and expenses are recognized when cash is actually received or paid. This differs from the accrual method, which recognizes revenue when earned and expenses when incurred, regardless of when cash changes hands.

Under the cash method, a business records income only when it receives payment for goods or services. Similarly, expenses are recorded only when the business actually pays its bills. This method is generally simpler to understand and implement, making it popular among small businesses and individuals.

The primary advantage of the cash method is its straightforwardness. It directly reflects the cash flow of a business, making it easy to track how much money is coming in and going out. This can be particularly useful for managing immediate liquidity.

However, the cash method can provide a less accurate picture of a company's financial performance over a period. For example, a company might have made many sales (earned revenue) but not yet collected the cash, so under the cash method, that revenue would not be reported. Conversely, a large expense might be paid in advance, meaning it impacts cash flow significantly but doesn't reflect the period in which the benefit of the expense is consumed.

Tax regulations often dictate which accounting method a business can use. While simpler, the cash method may not always be permitted for larger corporations or for specific types of financial reporting due to its potential to distort the true economic performance of an entity.