| The tax authority require bookkeeping
| |
| | invoice was received dated 1 December for
|
| records to calculate the tax due. The
| |
| | the 3 months from December 1 to February
|
| choice for small business is basically
| |
| | 28 which was paid by the small business
|
| cash accounting or accrual accounting
| |
| | owner by cheque on December 31 and a year
|
| each of which has advantages and
| |
| | end date also of December 31
|
| disadvantages.
| |
| | On a cash basis the rent would not
|
| The date of the sales invoice and the
| |
| | technically be included in the accounts
|
| date of purchase invoice are known as the
| |
| | as it would be shown as a rent payment
|
| tax point. The tax point does not
| |
| | from the business bank account on January
|
| determine the spread of that transaction
| |
| | 2 or later if cashed by the recipient at
|
| over the tax period which can be
| |
| | a later date. Therefore that quarters
|
| different when accounts are prepared on
| |
| | rent would be included in the following
|
| an accruals basis as opposed to a cash
| |
| | year accounts not the current year as
|
| basis.
| |
| | issuing a cheque is not a payment but
|
| For the purposes of cash accounting the
| |
| | actually a promise to pay.
|
| effective inclusion of the transaction in
| |
| | Assuming the rent was paid in cash prior
|
| the financial records is the date the
| |
| | to the 31 December then the whole 3
|
| cash or bank receipt or payment was made.
| |
| | months rent would be included in the
|
| The tax point date on the document is not
| |
| | current financial year. That treatment
|
| the deciding factor to include the item
| |
| | may have distorted the accounts as more
|
| in the accounts. The date the amount was
| |
| | or less than 12 months rent might have
|
| paid out or received into cash funds or
| |
| | been included in the tax calculations.
|
| bank account is the date to be used fopr
| |
| | On an accruals basis the rent invoice
|
| inclusion in the accounts.
| |
| | would have been entered in the accounting
|
| There are disadvantages to maintaining
| |
| | records with an effective date of
|
| accounts on a cash basis in that records
| |
| | December 1. The accountant or small
|
| must be kept of all payments received and
| |
| | business owner preparing the accounts
|
| paid out and those records supported by
| |
| | would deduct 2 months from the qaurterly
|
| the actual primary accounting documents
| |
| | amount leaving one months rent in the
|
| to which they relate. That entails
| |
| | current year accounts with the other 2
|
| matching the financial documents to the
| |
| | months being included the following year.
|
| payments and receipts records, a feature
| |
| | That is more accurate as the other side
|
| many small businesses might find onerous
| |
| | of the accounting would be for that same
|
| as record keeping ios often regarded by
| |
| | accountant or bookkeeper to further
|
| samll business as an administrative
| |
| | include the 2 months rent not already
|
| burden.
| |
| | claimed to be included in the tax
|
| Virtually all professional accountants
| |
| | calculation for the next financial year.
|
| adopt an accruals basis for clients
| |
| | Mvoing the prepayment not specific to the
|
| accounting purposes as it is based upon
| |
| | accounting period is how business treats
|
| recording all financial information
| |
| | a prepayment under accrual accounting.
|
| whether relevant to the tax period or not
| |
| | When operating cash accounting only
|
| and then adjusting the management
| |
| | transactions actually paid for or
|
| accounting profit indicated to produce
| |
| | received are valid. On an accruals basis
|
| the net taxable profit or loss.
| |
| | provisions can be made for costs incurred
|
| By operating an accruals basis all
| |
| | by the business whicvh have not yet been
|
| financial documents are recorded
| |
| | invoiced.
|
| according to the tax point date. If every
| |
| | Cash accounting might appear easier but
|
| transaction was paid or received within
| |
| | has the disadvantage of maintaining
|
| the year then the cash accounting and
| |
| | receipts and payments records in addition
|
| accruals basis would produce the same tax
| |
| | to the primary documents which should
|
| accounts.
| |
| | also be matched to the financial
|
| The main adjustment a small business or
| |
| | transactions to support the accounts.
|
| the accountant might make to accounts
| |
| | Accrual accounting is based upon
|
| prepared on the accruals basis is to
| |
| | recording all financial transactions and
|
| first prepare the set of accounts
| |
| | then adjusting the end result to
|
| according to the tax point of the primary
| |
| | determine the most accurate net taxable
|
| accounting records and then examine those
| |
| | profit. The accruals basis is favoured by
|
| transactions and adjust them according to
| |
| | accountants as it reaches an accurate tax
|
| their relevance to the financial period
| |
| | liability as opposed to more or less tax
|
| for which the accounts are being
| |
| | being payable on the cash basis according
|
| prepared.
| |
| | to the credit control policies and
|
| A typical example of the difference would
| |
| | practises of the business its suppliers
|
| be the rent invoice for the business
| |
| | and clients.
|
| premises. Let us assume a quarterly rent
| |
| |
|