When should accounting transactions be recorded in a cash accounting system?

In a cash accounting system, transactions are recorded specifically at the point when cash is exchanged. This means that income is recognized only when cash is received, and expenses are recorded only when cash is paid out. This approach contrasts with accrual accounting, where transactions are recorded when they are incurred, regardless of the cash flow.

The focus on cash exchange provides a clear picture of the actual cash available to a business at any given time, making it particularly useful for small businesses that may not have complex financial transactions. Therefore, the correct answer underscores the foundational principle of cash accounting: recognizing transactions at the moment of cash flow, which directly impacts the business's cash balance and liquidity.

Other options do not align with the cash basis principle. For instance, recording expenses as soon as they occur or when a check is written can lead to confusion and misrepresentation of the actual cash position, as checks may not be cashed immediately, thus affecting the cash flow records. Similarly, recognizing revenue as soon as it occurs instead of at the point of cash exchange could result in inaccurate financial reporting, as it does not reflect whether the cash has actually been received.