Which accounting approach records transactions only when cash is received or paid?

The accounting approach that records transactions only when cash is received or paid is cash-basis accounting. This method is straightforward and recognizes revenue at the moment cash is received from customers, and expenses are recorded when cash is actually paid out. This means that income statements prepared using cash-basis accounting reflect only the cash flow, providing a clear view of immediate cash availability.

In contrast, accrual accounting records revenues and expenses when they are earned or incurred, regardless of when the cash transaction occurs. This approach provides a more accurate picture of a company's financial position by including accounts receivable and payable. Deferred revenue accounting pertains specifically to recognizing income before it is earned, while cost accounting focuses on capturing the costs associated with production and is not directly concerned with cash transactions. Understanding these distinctions highlights why cash-basis accounting is uniquely characterized by the timing of cash flows.