Cash Cost

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DEFINITION

A cash basis accounting cost recognition process that classifies costs as they are paid for in cash, and is recognized in the general ledger at the point of sale. This method is contrary to the accrual cost recognition method, which directly influences the operating cash flow figure.

INVESTOPEDIA EXPLAINS

Cash costs are costs that businesses pay for when using cash, or a check, but not credit. On a cash accounting basis, the costs paid for by using credit would not be recorded in the general ledger until the actual cash has been paid. This is the main reason why firms moved away from the cash accounting method to the accrual method, as the accrual method will recognize credit transactions as well as cash transactions.


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