SME cash accounting ‘a good idea’

by Rose Orlik

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07 Oct 2011

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CASH ACCOUNTING for SMEs has been championed by business network the Institute of Directors, which says the system more closely reflects non-accountants' understanding of profit.

Commenting on the Office of Tax Simplification's discussion paper, A simpler income system for the smallest businesses, the body argued: "Many small businesses probably already use cash accounting, without the Revenue's noticing."

Some accountants have dismissed the idea, saying accruals accounting is so deeply ingrained that it would be more complicated to take a retrograde step to an ostensibly simpler system.

Danielle Stewart, business services partner at Baker Tilley, noted all accounting software is geared towards accruals, saying for this reason alone, cash accounting makes little sense.

Calling the OTS paper "a good start", IoD head of taxation Richard Baron said: "Cash accounting is definitely the leading option. It is crazy to continue as now, and require thousands of people running small part-time businesses to grapple with the technicalities of accountancy."

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