Which of the following statements correctly describes the cash method of accounting?

The cash method of accounting is a straightforward approach used by many small businesses. Under this method, income is recognized when cash is actually received, and expenses are recognized when cash is paid out. This means that transactions are recorded based purely on cash flow rather than when they are earned or incurred.

The statement indicating that income and expenses are recorded at the time they are earned or incurred aligns with the accrual method of accounting, which is different from the cash method. In the cash method, income and expenses are only recorded when cash exchanges hands, making the correct description of the cash method the one that accurately states that income is recorded upon receipt and expenses at the moment of payment. Understanding this distinction between cash and accrual methods is crucial for effective accounting practices.