Which method records income only when it is actually received?

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The cash method is a financial accounting approach that records income only when it is actually received, rather than when it is earned. This method recognizes revenue and expenses based on actual cash transactions, meaning that income is documented only when cash is received from customers. This is particularly advantageous for small businesses and individuals, as it gives a clear picture of cash flow and available funds at any given time.

In contrast, the accrual method recognizes income when it is earned, regardless of when cash is received. The hybrid method combines elements of both cash and accrual methods, allowing for more flexibility but still relies on recognizing income at different times than when cash changes hands. The completed contract method is typically used in long-term construction contracts, recognizing income only when the entire project is completed. Each of these methods has different implications for financial reporting and tax liabilities, but the defining characteristic of the cash method is its focus on the actual receipt of cash for income recognition.

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