Virginia Contractor General Practice Test

Under the cash method of accounting, revenue is recognized when cash (or a check) is actually received. This is a fundamental characteristic of the cash basis method, which differs from the accrual method where revenue is recognized when it is earned, regardless of when the payment is actually made. In the cash method, the focus is on cash flow; therefore, revenue is not recorded until payment is received. This means that waiting for an invoice to be issued or considering when funds are deposited to a bank account does not determine revenue recognition under this method. Revenue recognition is strictly tied to the moment actual cash inflows occur, ensuring that a business only reports income when it has real cash available, reflecting a more immediate financial position. This approach can be particularly beneficial for small businesses and individuals managing cash flow closely.