Postby Lambs » Sun May 23, 2021 5:29 pm
D,
Cash accounting means that you recognise only amounts paid and received, and no longer adjust for things like Debtors, prepayments or accruals.
In the period/year in which you move from traditional accruals-based accounting to the cash basis, you should adjust to make sure that things are not double--counted, but also ensure that things are claimed that might otherwise be missed.
For example:
You raised a sales invoice last year under traditional accounting so it was recognised as sales in that year; you received the cash in this the first cash-accounting year, so ordinarily you would recognise it again, but you do NOT because it is a transitional adjustment.
You renewed your website last year but claimed only 6 months of the cost because half of the outlay was "prepaid" and related to the current year. Under cash accounting, the 'old' payment does not exist (although you will claim the current year's payment in full) so you are allowed under the transitional rules also to claim for the "missing" unclaimed 6 months left over from last year. This will mean you get 18 months' worth of cost in this first 12-month period under cash accounting, but this is permitted under the cash-accounting rules.
Conversely, if you accrued last year for a payment obligation - purchases, professional fees, repairs or similar - for which you had not actually paid at the end of that year but are physically paying it this year under cash accounting then, unsurprisingly, you are not allowed to claim a deduction twice.
I trust this makes sense.
With regards,
Lambs