Is cash basis accounting GAAP compliant?

Cash basis accounting is not GAAP compliant: Cash basis accounting disregards the matching and revenue recognition principles of accounting. These principles are two of the generally accepted accounting principles, or GAAP, that are recognized as the foundation of good accounting practices.

Which accounting method is allowed by GAAP?

Only the accrual accounting method is allowed by generally accepted accounting principles (GAAP). Accrual accounting recognizes costs and expenses when they occur rather than when actual cash is exchanged. The matching principle of accrual accounting requires that companies match expenses with revenue recognition, recording both at the same time.

What is the difference between accrual and cash basis accounting?

One option is accrual basis accounting, which is based on generally accepted accounting principles, or GAAP. The other option is cash basis accounting or its close counterpart, the modified cash basis. The Internal Revenue Service allows individuals and small companies to use cash basis accounting.