Which statement accurately describes cash accounting?

Cash accounting is a method where revenues and expenses are recognized and recorded only when cash is actually exchanged. This means that income is recorded at the moment cash is received, and expenses are recognized when cash is paid out. This approach provides a clear reflection of cash flow, allowing businesses to see their actual cash position without accounting for receivables or payables that have not yet resulted in cash transactions.

This method is particularly beneficial for small businesses or individuals who may not need to adhere to more complex accounting standards, as it simplifies the process of tracking financial transactions by focusing solely on cash movements. In contrast, other methods like accrual accounting record income and expenses when they are earned or incurred, regardless of the cash flow.