Traditional vs Cash Basis Record

Updated: Jan 13, 2019



Oh snap your receipt and invoice start to pill up nicely on your table or car even kitchen top. That need tidying immediately to avoid sheer confusion.

Girlfridayz to the rescue I have written a guide on Record Keeping which by the way is a legal requirement for your business dealing so hoop it a must do.

so which to decide to use would it be the Cash Basis accounting or the Traditional accounting system. Decision decision oh this can be though but let me tell you which benefit you may have using one or the other.

Cash Basis vs Traditional

Cash Basis

Cash basis accounting is a simple version of recording your business transactions. Your sales and expenses.

You declare the amount of sales when you receive the payment and the expenses when you paid the bill on your tax return. If you have a van car, equipment etc that you use for your business you can claim capital allowance but all other items you purchase for your business i.e computer, printer should be claim as allowable expenses.

Cash basis also have flat rate already decided by the government if you run your own office depending on number of room use for your business, electricity, gas, internet, phone etc.

You can use Cash basis upto £82000 once you make £82001 I' am afraid Cash Basis no longer for you time to switch to traditional accounting.

Traditional

Traditional accounting it is to record your sale by the date you invoiced (even if you did not receive the money) and the expenses by the date you were billed (even if you have not settled the bill yet).

However if you invoiced someone and you never receive this cash you can declare all your bad debt as expenses.

Well if you do declare your bad debt as expenses you are not tax on money that you never had hoping to get it at later date or later year.

However if you received that money let say a year later and you had declare it as bad debt and pass off as expenses.

Well you would have to pay tax on that money the next tax year because you invoiced it the current tax year did not get the money the current tax year and got paid the next tax year. ( see the potential headache, error, mistake).

Hence if you never pass your bad bebt as expenses you get tax on it even if you did not get this money. But if you receive this let say a year or two later you already paid tax on it you cannot pay tax twice on the same amount of money received. Another potential headache you need an accountant simple.

You can claim capital allowance if you purchase a van, car, equipment etc under traditional accounting.

Conclusion

Traditional accounting can be a doodle or a major headache expecially if you do not know what you doing well you could enlish the service of Girlfridayz for both methods of accounting to start your record for you. Them over to you to keep it up or send them again to Girlfrdayz to update quartely and start up new tax year and keep updating these record for you. Or you can enlish the service of an account to do it for you. your record and tax return.

Tips if you a sole trader or home worker do not keep much stock or do not have stock, A small business which profit is less than £82000 well Cash basis is for you much simplified accounting system a doodle, Traditional is obligatory over £82000 profit there is no flat rate and math has to be done.

Purchase our latest guide for as little as a fiver in our online store on record keeping guide for sole traders and SME's you get both method explained fully include example to base yourself on and tip.

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