Cash Cost

Cash cost is a term used in cash basis accounting that refers to the recognition of costs as they are paid in cash; cash costs are recognized in the general ledger at the point of sale. This method is contrary to the accrual cost recognition method, in which even non-cash payments directly affect the operating cash flow figure.

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 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.