What is meant by cash basis in accounting?

The concept of cash basis in accounting refers specifically to the method whereby revenues and expenses are recognized when cash is actually received or paid, rather than when the transactions occur. This means that income is recorded when cash is received, and expenses are recorded when cash is paid out.

In this context, the correct interpretation aligns with the understanding that transactions are documented on the date the cash is received. This approach contrasts with accrual accounting, which records revenues and expenses when they are earned or incurred, regardless of cash exchange timing.

The other options provide different scenarios that do not accurately reflect the cash basis method. Expenditures recorded when paid would suggest cash outflows, which indeed aligns with the cash basis, but does not fully encompass the revenue aspect of the definition. Transactions recorded when invoices are sent, or expenses recorded at year-end do not represent the principles of cash basis accounting, as they focus on the timing of document issuance rather than cash exchanges. Hence, focusing on when the cash is received or paid is central to the cash basis methodology, validating why the correct understanding focuses on the date the cash is received.