ICAS warns of difficulties surrounding cash-based accountancy

The Institute of Chartered Accountants of Scotland (ICAS) believes unincorporated businesses will find it more difficult to manage their finances when cash-based accounting is introduced.

James Barbour, ICAS Director of Technical Policy, said that firms could face unexpected financial difficulties when the measure comes in from April 2013.

The government confirmed in yesterday's (December 5th) Autumn Statement that unincorporated businesses with receipts of up to £77,000 will moved to cash accounting from this date.

But Mr Barbour says this could cause difficulties in the years to come.

"Focussing on cash may lead to less consideration being given to outstanding debts of the business and provide the owner with a false sense of security," he noted.

"Businesses need to understand their true financial position and only accounts prepared on an accruals basis satisfy that need."

Small firms will benefit by measures announced by Chancellor of the Exchequer George Osborne yesterday, with the Annual Investment Allowance increasing to £250,000 as of January 1st.

Posted by Emily Smith

Last updated: 6th December 2012