Which of the following is a characteristic of cash based accounting?

A significant characteristic of cash-based accounting is that income is recorded when it is actually received, not when it is earned. This means that a business recognizes revenue only when cash has been exchanged, providing a clear picture of cash flow at any given time. This method contrasts with accrual accounting, where income is recorded when it is earned, regardless of when payment is received.

When using cash-based accounting, the timing of income recognition is closely tied to cash transactions, making it simpler for many small businesses to maintain their books. This approach can also help businesses manage cash flow more effectively, as they are only reflecting income that has actually been paid, thus avoiding the complications that can arise from tracking receivables.

The other options describe aspects of accrual accounting or do not accurately reflect the principles governing cash-based accounting. For example, expenses typically recorded when incurred or income recognized when earned pertain to accrual accounting methods. Consequently, identifying that income is recorded in the cash-based method when it is received highlights the basic nature of this accounting approach.