Cash basis accounting is a method of recording business transactions based on cash as opposed to accrual accounting. It involves recording revenues when they are received and expenses when they are paid. This system simplifies the bookkeeping process, since it requires fewer entries than an accrual method. However, it may not produce an accurate picture of a company’s financial position because transactions used to calculate income or expenses may not be included in the accounts until some time later. Cash basis accounting is the preferred choice for small businesses that do not have a significant amount of inventory or capital assets.