IREM Certified Property Manager (CPM) Practice Test

Cash accounting is characterized by recognizing revenues when they are received, which is a fundamental feature that differentiates it from accrual-basis accounting. In cash accounting, transactions are recorded only when cash is exchanged, meaning that income is acknowledged at the moment it is received, regardless of when the service was provided or the sale was made. This approach offers a simpler tracking method, particularly for small businesses or those without complex financial environments.

On the other hand, accrual-basis accounting records revenues when they are earned, which may be before the cash is actually received. This method provides a more accurate picture of a business's financial situation over time, as it takes into account all the revenues and expenses incurred within a specific period, rather than just transactions that involve cash movement.

The other options present concepts that do not accurately describe the distinctions between cash and accrual accounting. For example, expenses in cash accounting are recognized when paid, not when incurred, while option D overstates the requirement for accrual accounting, as not all businesses are mandated to use it under certain income thresholds.