Traditional accounting or cash basis.

tribetown

I have filled in my self employment self assessment and there is a question which is optional so I left it blank but I am still curious.

It is asking if I used "traditional accounting or cash basis". I did Google it and it appears traditional accounting is mostly used by large companies, I am not.

I am part time and net earnings are about 11k.

I submitted actual earnings and expenses figures as all my customers had paid so I think that would fit the traditional accounting label.

poseidon1

You are actually referring to the difference between cash as opposed to accrual accounting explained below :

https://www.sage.com/en-gb/blog/cash-versus-accrual-accounting-what-is-the-difference/?utm_source=GOOGLE&utm_medium=paidsearch&utm_campaign=UK%7CGoogle%7CSmall%7CGeneric_Accounting/SMAACNG(MaxConv)PMax_SMAACNG_&utm_content=&utm_term=&gclsrc=aw.ds&gad_source=1&gad_campaignid=23752532316&gbraid=0AAAAADmL1QJIwEHGJkUtVAHv4Ju78Rqio&gclid=CjwKCAjwrNrQBhBjEiwAoR4VO8_9jrH5kMEo0ailmOe2ww9c9yZ-11HLGY2jnqtYR6BiBz62tlzQyhoCoZQQAvD_BwE

If you are wholly on a cash basis for your annual accounts and tax reporting you focus purely on what goes through your business account by way of income and expenses during your accounts year.

For example if you invoiced a client on 31 March but not actually paid until after 5 April you would be reporting and taxing that income in the new tax year on a cash basis. An accruals basis of accounting and taxing would have that income reported in the tax year you raised the invoice rather than the actual year payment is received.

This is all pretty basic stuff anyone who is self employed should have become familiar with and decided which basis to use, long before their first self assessment return.

uknick

Assuming you mean companies as those that are Ltd, then your comment "mostly used by large companies" is factually incorrect. ALL Ltd are mandated under the Companies Act to use traditional accounting.

sherlock228

you describe yourself as self employed and given what you say, you do not operate as your "own" Ltd Co so…

HMRC's default for your tax return is that you use the cash basis (hence the option to tell them if you do not).

In a nutshell, you do what you appear to have naturally done: you record your income and expenditure on the date it appears in your bank account

As others have posted, the concept underpinning traditional accounting is "accruals accounting" which, in a nutshell, means the timing of income and expenditure is not (necessarily) when the cash hits the bank

LITRG

Hello tribetown, you may find our guidance useful in understanding the difference between traditional accounting (accruals basis) and cash basis accounting;

Accounts: traditional accounting (accruals basis) | Low Incomes Tax Reform Group and

Accounts: cash basis | Low Incomes Tax Reform Group