GLOSSARY

Canadian Financial, Real Estate and Mortgage Glossary

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Cash Method


Synonyms:book keeping method
Filed Under: financial-banking, real-estate, taxation
Tags: banking, realty, taxes
 

Definition of cash method

cash method
1. The form of accounting used by most individuals where income is reported in the year it is received, but expenses are deducted in the year that you pay taxes. For example, if you remodel a kitchen and bill the client in December 2004, but do not receive payment until January 2005, the funds are counted as income in 2005 and not when the work was done in 2004.

Related Terms and Acronyms:

  • accounting method   The method used by a business or individual to keep records. Most individuals and small businesses use the cash method, although businesses that maintain inventory are required to use the accrual method. See also "Accrual Method" or "Cash Method."
  • accrual method   Business accounting in which you report income in the year you earned it and expenses in the year you incur them, rather than reporting income and expenses when you receive payment or when you pay the expenses. Under this method, if you built a deck and billed the client in December 1999, the amount you charged would be reported in 1999 as income even if you didn't get the payment until January 2000. If you own a business that maintains an inventory, you are required to use the accrual method.
  • basis point (BPS)   A unit of measure: 1/100th of one percent. For example, the difference between a 9.0% loan and a 9.5% loan is 50 basis points.
      ➥  Used by mortgage brokers and lenders when discussing mortgage rates and determining commissions.

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