Is The Cash Accounting Method Best For Your Business?

Chartered accountants in Kent can select the best accounting method based on the needs at hand and client preference. This accounting method refers to recording of sales during payment and expenses at the time of paying. In other words, an expense record entry is made when cash is changing hands.

In contrast, the accrual basis accounting provides that a credit record entry is made when credit is earned rather than received. Debts are recorded when owned not when actually received.

Accountants in Kent can use this method to reduce bookkeeping costs because the books are simpler and lesser time consuming than in accrual method. The accountants in Kent can use this method to easily determine profitability of a firm. The method can also, by way of maintaining a current cash accounting balance sheet, help assess the financial situation of a company.

The cash accounting method can be chosen for its numerous advantages, which are many in addition to those mentioned above.

In terms of paying taxes, the method will ensure that no tax is paid on monies that are yet to be received. This ensures that the funds for tax expenditure are available when it is time to expend. This is great for individuals and small businesses where cash flow is restricted at certain times.

Another advantage is that this method allows for tracking expenses and profits by large entities and for large inventories in a convenient way without a great deal of bookkeeping.

This method, for those looking for the best accounting method from accountants in Kent, is suited for businesses that are paid in advance or must pay for inventory at the time of delivery. In this case, they will provide accurate record keeping. An example of business that can consider this type of accounting method is a tanning salon: expenses such as buying tanning oil is paid on a cash basis and utilities too are paid in cash upon receipt of the bills. Again, their income is acquired on a cash basis.

Large companies may, by design, find this method hard to use because they might have to wait for supplies and deliveries. In this case, the accrual basis method is more suitable. Not only will it allow tracking of partial payments, accounts receivables and accounts payables even when cash has not changed hands, it is also better for controlling delayed payments and receipts. However, there are some drawbacks for using this method, which might make other methods attractive for you and chartered accountants Kent can help in that regard. For instance, it is not possible to track the actual dates of sales and purchases with this simple accounting method.

This method does not let you match transactions to specific items of inventory. Absence of accounts receivable or accounts payable records can create problems for a business that does not receive immediate payment for goods or has an outstanding bills that are yet to be paid.

There are no records for partial payments and therefore, the balance sheet will not reflect all the amount of money due. With this method, it might be difficult to receive or make payments in a timely fashion because meticulous records are not kept of these outstanding balances due or owing.