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."
And how many "small part-time businesses" does the IoD have as members?
The people who run micro-businesses don't 'grapple' with these technicalities anyway - they give their records to their accountant and he/she does the technical work. So where's the administrative saving?
The intentions are good, but more input is needed from those closer to the ground on this one.
Posted by: Neil Reddin, 07 Oct 2011 | 11:53
Cash accounting produces something akin to a cash flow statement, not a profit and loss.
"non-accountants' [mis]understanding of profit" is a problem, not an objective.
Posted by: Dave, 08 Oct 2011 | 13:08
Cash accounting is a recipe for manipulation - e.g delay banking your receipts at year-end; delay issuing sales invoices etc. Accountants in practice know that this was commonplace in the old days but perhaps the IoD and the OTS, either are not aware of the practical aspects of business or are prepared to allow manipulation of profits and tax in the interests of simplification. Do they really believe naively, that this is the sort of simplification the country needs to help it get back on its feet?
Posted by: Al, 09 Oct 2011 | 17:43
How is the Iof D qualified to say how many of "their" businesses would benefit from cash accounting.
It is an ill conceived idae from non accountants who do not understand what is involved.
Posted by: taxbak, 10 Oct 2011 | 23:18
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