When using cash accounting, which accounting standard is applied to determine net income?

In cash accounting, the cash basis principle is utilized to determine net income. This method recognizes revenues and expenses only when cash is actually received or paid, rather than when they are incurred. Under this principle, net income is calculated based solely on transactions that involve actual cash flow, simplifying the accounting process for businesses that may have fluctuating revenues and expenses.

The cash basis accounting approach contrasts with accrual accounting, where revenues and expenses are recorded when they are earned or incurred, regardless of when the cash is exchanged. By focusing solely on cash transactions, the cash basis principle provides a clear view of a company's cash position and immediate financial health, which is particularly beneficial for small businesses or those that operate without complex accounts receivables or payables.