Cash accounting is often used by small businesses because of its simplicity, but it has significant limitations regarding depreciation. Since depreciation is not an actual cash transaction, it is typically excluded under cash accounting. As a result, financial statements may fail to reflect the gradual reduction in asset value, leading to distorted profitability figures. Businesses relying solely on cash accounting risk overestimating their performance and underestimating asset wear and tear. www.rhombusaccounting.co.uk/blog/cash-vs-accrual-accounting