What happens under the cash method when income is received?

Under the cash method of accounting, income is recognized when it is actually received, which means it is reported immediately in the accounting records. This method is straightforward as it focuses on cash flow; income is recorded when cash is in hand, regardless of when the services were provided or the goods were delivered. This allows for a clear understanding of available funds for both personal and business financial management.

In contrast, the other options outline different methods of income recognition. For example, recognizing income only when earned refers to the accrual method, which aligns revenues with the periods they are earned, not when the cash is received. Deferring income to the next accounting period also aligns more closely with accrual accounting practices, where revenue is matched with expenses in the same period. Lastly, the requirement to spend income immediately is not a standard accounting practice and does not align with any recognized method of accounting. Therefore, the immediacy of reporting under the cash method clearly supports the accuracy of the correct answer.