Final answer:
Cash basis accounting records revenues and expenses when they are received and paid, respectively. It's simpler than accrual accounting but doesn't show the true financial position of a business because it doesn't account for outstanding revenues and expenses.
Step-by-step explanation:
Cash basis accounting measures the difference between cash receipts and cash disbursements during a reporting period. Unlike accrual basis accounting, cash basis accounting records revenues when cash is received and expenses when they are paid, not when they are incurred. This method is simpler but does not show the true financial position of a business over a period of time since it does not account for all earned revenues and incurred expenses.