Cash basis or accruals basis
Two ways to decide when income and costs count. Work out the same month both ways and see why the profit differs.
This path is practice in how the records and the sums work. It is not tax advice. Any rate or allowance in a question is an example for that question, so check GOV.UK for the current figures.
In this room: 3 tasks, 9 questions
- Two ways to count3 questions
- March on the cash basis3 questions
- March on the accruals basis3 questions
- Cash basis
- income counts on the day the money arrives, and a cost counts on the day you pay it
- Accruals basis
- income counts on the date of your invoice, and a cost counts on the date of the bill, paid or not
Both ways reach the same total in the end. They differ in which month or year a figure lands in.
HMRC sets which basis a sole trader may or must use, and the rule has changed before. The current rule is on GOV.UK.
Answer the questions below
2 more questions follow in this task.
On the cash basis, look only at the last column. If the money moved in March, the line counts in March.
| Item | Amount | Invoice or bill date | Date the money moved |
|---|---|---|---|
| Invoice to Mrs Okafor, hallway | 600.00 | 5 March | 12 March |
| Invoice to Fern Café, repaint | 900.00 | 28 March | 10 April |
| Bill for trade paint | 240.00 | 8 March | 8 March |
| Bill for scaffold hire | 150.00 | 25 March | 6 April |
Answer the questions below
2 more questions follow in this task.
On the accruals basis, look at the invoice or bill date. If that date is in March, the line counts in March.
| Item | Amount | Invoice or bill date | Date the money moved |
|---|---|---|---|
| Invoice to Mrs Okafor, hallway | 600.00 | 5 March | 12 March |
| Invoice to Fern Café, repaint | 900.00 | 28 March | 10 April |
| Bill for trade paint | 240.00 | 8 March | 8 March |
| Bill for scaffold hire | 150.00 | 25 March | 6 April |
Profit is income less costs, on either basis.
Answer the questions below
2 more questions follow in this task.