Should I use the cash basis for my accounts?

The cash basis is now the default method of accounting, and restrictions have been removed, such as the £150,000 turnover threshold. It’s likely that businesses will be keen to use the cash basis, due to it being simpler and easier to understand. Smaller and cash-based businesses may in particular find this accounting method more useful. 

Cash accounting is based on transaction date, so there is no need to include debtors, accruals and other accounting adjustments in your accounts. This means you will not pay income tax on income until it is received. There is no balance sheet and as a result the accounts will show a different outcome to what you’ve previously seen and expect. 

Using the more traditional accounting method of accruals basis, gives a broader picture of business performance as the accounts include a balance sheet which provides business owners and third parties with a snapshot of financial health at one point in time. This document can enable business owners to make informed decisions based how the business is running overall. You may need to prepare accounts using the accruals basis to use as supporting documentation for finance applications.  

We recommend that you seek professional help when considering moving from accruals accounting to the cash basis. The decision will be very dependent on your own circumstances and needs to be tailored to you. The first set of accounts may include a considerable amount of adjustments and it’s important to get these correct to avoid double counting. 

How we can help 

TaxAssist Accountants are experienced in accounts preparation and can liaise with you to find the best method for your business or self-assessment tax return. Speak to our friendly team by calling 01423 871 870 or use our online contact form and we’ll get back to you. 

Date published 5 Apr 2024 | Last updated 8 Apr 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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