Accounting-For-Small-Business-SuccessFirst, what is cash basis?
It is the recording of your income and expenditure as you receive it or pay it out.  Therefore, on this basis, your financial accounts would not include any invoices you have issued for which you have not been paid (debtors) or any invoices you have received for which you have not made payment (creditors).

This is as opposed to what is known as accrual based accounting which is where your financial accounts reflect the invoices you have actually issued and received regardless of whether you have received payment for your invoices or paid the invoices you have received, at your financial year end date.  Accrual based accounting is what you should have been doing prior to 2013/14.

Why is this relevant to me?
If you are a sole trader, then from the current tax year, 2013/14, under the provisions of the Finance Bill 2013, you can use cash accounting, provided your income is less than £79,000 (this is the threshold when you have to register for VAT) The aim being to simplyfy accounting and tax for small businesses. The reality is that this may not be too different from what you had been doing previously.

Do you take goods from your business for your own use?
The businesses that immediately come to mind are Networking Marketing/MLM, where the distributors are advocates of the products and therefore consume them as part of their business.  Prior to cash basis accounting this should have been added to income at market value, under the new rules this adjustment can be made at cost price.

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