Cash basis of accounting is doing exactly as the name refers – you account for transactions as the cash “moves” (cash physically or through bank accounts). Note that when cash didn’t “move” (i.e. you didn’t pay your bills or you did not receive money from clients) you don’t account for the named transactions either. It’s just left there “hanging” sort of say, somewhere on papers or in your memory. They are your unpaid bills and invoices. 

One of the downsides with keeping your accounting cash basis is the fact that you’ll never know your real expenses or revenue for the period. You may have a significant payable balance to one of your suppliers, but since you haven’t paid for it, it’s not in your expenses. This happens so regardless of the fact it relates to current period. You will account for it as the payment occurs and not sooner. Into which period the transaction relates to do not matter the slightest. If you paid in June for May’s rent, its June the expense is accounted into.

When you’d argue that why even have such an accounting method, keep in mind that there are businesses and sole traders who don’t exactly need accrual basis of accounting. Why? Main reason being that reporting requirements for them are extremely low, they are sole owners and they’re probably trading in such business where it’s acceptable to use this method. Cash basis of accounting is simple because it always “follows the trail of cash”. Having to account for transactions only if money was moved means that you’re never wrong in your timing and amounts when it comes to accounting entries. You paid off a 100 from a 1,000 debt means you’ll account for an expense for this 100 and not the full 1,000. The remaining 900 are still kept as your payable, but it’s not in your accounts.

When doing business what you’re aiming at the most is also being of course profitable, but also being liquid, i.e. having reasonable amount of cash. One statement where we use cash movement based information is the statement of cash flows. Note however that this statement can be prepared based accrual based information with slight adjustments done to the figures.