Contact Us
Sign In / Sign Up for FREE
Go to advanced search...

Cash Accounting - Essay Example

Comments (0) Cite this document
Tax accounting is a special type of accounting system that is eligible to you, if you are a registered trader having a turnover that will not exceed 1,350,000 pounds in the next 1 year. Unlike general accounting systems that are based on the invoices issued and received, cash accounting enables you to account for and pay Value Added Tax (VAT) based on the cash received and paid…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER96.6% of users find it useful
Cash Accounting
Read TextPreview

Extract of sample "Cash Accounting"

Cash accounting - Explaining its necessity and understanding when and how to go for it TABLE OF CONTENTS Defining Cash Accounting Working of Cash Accounting
Understanding the Advantages and Disadvantages of Cash Accounting
Distinguishing Between Zero-Rated and Exempt Supplies
Defining Cash Accounting
Tax accounting is a special type of accounting system that is eligible to you, if you are a registered trader having a turnover that will not exceed 1,350,000 pounds in the next 1 year. Unlike general accounting systems that are based on the invoices issued and received, cash accounting enables you to account for and pay Value Added Tax (VAT) based on the cash received and paid. VAT is an indirect sales tax, that you need to pay on various taxable products and services during their stages of production and distribution, which are based on the value added at those stages.
Working of Cash Accounting
To use cash accounting, you need to apply for it; rather you should make all necessary VAT returns. You also have to satisfy the HP Revenue and Customs by clearing any VAT payment arrears to use the cash accounting scheme. When you start using the cash accounting scheme, it is must to use it for the whole business and it is desirable to continue it for a period of 2 years. However, you can quit the scheme at any moment, provided it does not contribute to your business as well as your accounting system does not support the necessary requirements for the scheme. While starting with cash accounting, you need to be very much careful that you do not re-account for any VAT on receipts and payments that are already dealt with.
In cash accounting the main accounting record is kept in a cash book summarizing all the payments made and received. It has a separate column where you can specify the relevant VAT. In the cash book, you also need to record the corresponding tax invoices and provide an efficient system for cross referencing.
Understanding the Advantages and Disadvantages of Cash Accounting
The benefit of the cash accounting scheme primarily depends on the time period between the issuing of the sales invoice to receiving payments from the customers. Cash accounting is likely to be more beneficial when this time period extends. There is also no due on output tax for your business until the business receives the payment against the sales invoices, which in turn, helps in automatic bad debt relief. Cash accounting also simplifies the bookkeeping requirements where you can control many businesses with the help of an appropriate cash book.
However, there are disadvantages as well of this scheme. The primary disadvantage of cash accounting is that when you receive a tax invoice, you cannot take the credit for VAT. You need to wait for it until the payment is actually made.
Distinguishing Between Zero-Rated and Exempt Supplies
The zero-rated and exempt supplies are two types of supplies used in the cash accounting scheme where the rate at which VAT is charged is zero. However, the primary difference between them is that zero-rated supplies are taxable whereas exempt supplies are non-taxable. You can claim the input tax in respect of the goods or services that are used to make zero-rated supplies as a deduction, which you cannot do in case of exempt supplies. However, the difference between these two supplies is significant regarding registering for VAT. It is because, unlike exempt supplies, a person making zero-rated supplies can go for a VAT registration.
1. "Zero-rated Supplies - VAT Information Leaflet No. 7."
2. "Cash Accounting Scheme."
3. "Economic & Commercial Concepts and Terms."
Read More
Cite this document
  • APA
  • MLA
(“Cash Accounting Essay Example | Topics and Well Written Essays - 500 words”, n.d.)
Cash Accounting Essay Example | Topics and Well Written Essays - 500 words. Retrieved from
(Cash Accounting Essay Example | Topics and Well Written Essays - 500 Words)
Cash Accounting Essay Example | Topics and Well Written Essays - 500 Words.
“Cash Accounting Essay Example | Topics and Well Written Essays - 500 Words”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document


Cash and accrual accounting

...? Introduction The goal of the company is to have a profitable business that maximizes the profit, and make sure they prepare and keep their financial report. There are two significant accounting techniques that are utilized to maintain recording of the business. These include cash and accrual method and the company can use any method depending on the benefit they receive from using either of the techniques. Thus, the cash basis accounting seems attractive because of its simplicity in that the accounting records are maintained on the cash flow of the business. Meanwhile, accrual basis is accounting techniques that transactions are recognized when item is delivered, and revenues are recorded when they are earned. Although, the two methods...
5 Pages(1250 words)Essay

Cash Accounting versus Accrual Accounting

...? TABLE OF CONTENT Chapter Introduction Chapter 2 – Theory ……………………………………………………………………2 Chapter 3 – Practice ………………………………………………………………….10 Chapter 4 – The application of theory to practice …………………………………13 Chapter 5 – Conclusion………………………………………………………………16 References……………………………………………………………………………..17 Cash Accouting V/C Accrual Accounting Chapter 1)Introduction Cash accounting and accrual accounting are the two basic accounting methods used to track the income and expense of a business concern. Precisely speaking, these two methods are only different from each other on the timing they are debited or credited to the business accounts. In cash accounting method, the income is considered when cash is received and expense is considered when cash...
15 Pages(3750 words)Assignment

Paper Cash vs. Accrual Accounting the sense that their balance sheets include both liabilities and assets. The cash accounting is common among small business owners. For businesses that record annual sales of more than five million dollars or keep an inventory of items they to sell to the public, the accrual method is prescribed (Pinson, 2007). It is easier to grasp the principles of cash accounting as compared to accruals accounting. It is also cheaper to hire accountants for cash accounting as opposed to the accruals method. In planning tax, the cash accounting is preferable by businesses because...
3 Pages(750 words)Essay

Accounting - Cash and Accrual

...Organizations have always had a need to keep track of its economic activity in order to determine the performance. Accounting is the business discipline responsible of determining the financial performance of a business entity. The accounting field was founded in 1492 by Italian mathematician Luca Pacioli who first introduced the concept of a double entry system in his book Summa de Arithmetica, Geometria, Proportione ET Proportionelite. For over 500 years accounting has served an instrumental role in the business development of firms throughout the world. There are two basic systems that can be utilized to run an accounting information system. The two accounting systems are cash and accrual basis accounting. This report analyses...
4 Pages(1000 words)Essay

Accounting - Internal Cash Control

This will help the company to shift from manual processes to automated processing. Lastly, a safe should be provided where all blank checks are stored and access should only be provided to the treasurer or whoever, is entitled to sign checks.
Guard Dog Company has brought stringent changes to their system which will help them use their cash well and avoid any mistakes in cash disbursements. Guard Dog has applied the following principles in their attempt to strengthen their internal cash control for cash disbursements.
Firstly, Guard Dog’s approach to eradicate manually preparation of checks has been in pursuance of a principle known as ‘Documentation procedure’. All checks are to be numbered and written after receiving app...
4 Pages(1000 words)Essay

Cash flow in business organizations (Accounting)

Cash generated from operating activities informs a business owner how much the company or business generated from its primary business operations, rather than the outlying activities such as borrowing and investing. In a period, this section of the cash flow statement gives a clear picture of how the company’s business activities are generating cash that will benefit both the stakeholders and the shareholders. The cash flow from operating activities gives the amount of cash created and excludes expenses linked to long-term venture on capital items. Notably, the International Financial Reporting Standards delineate cash flow from operating activities as the revenue created from the business activities. Cash flow from operating acti...
5 Pages(1250 words)Coursework


...Accounting Task Table of Contents Accounting Table of Contents 2 Introduction 3 Explanations of the difference between net profit and net cash flow within a financial period 3 Difference between direct and indirect cash flow presentation 4 Comparison of the cash flow statements of Vivendi Universal France Media and Lagardere Sca France Media for the year 2011 and 2012 4 Appendix A: indirect method of cash flow (Company L) 8 Appendix B: direct method for cash flow (Company T) 8 Appendix 2: Vivendi Universal’s cash flow statement 9 Appendix 3: Lagardere Sca’s Cash flow statement 10 Introduction This document is a report of the analysis of cash flow statement. The major sub-headings appearing in this report are the reasons why net income...
5 Pages(1250 words)Coursework

Cash Basis Accounting

... Finance and accounting Question one The cash basis accounting is used by most of the sole proprietors as well as businesses without inventory. The system is considered appropriate for a small service company, cash-based business or small businesses. On the cash basis, accounting revenue is recognized once cash is received. On the other hand,in accrual accounting expenses tend to be recognized when cash is paid. Cash basis accounting differs with the accrual basis accounting in some ways (Tulsian 23). In cash basis accounting, revenues are recorded on the income statement once cash is received while in accrual-based accounting it is recorded when cash is earned. Cash earned entails cash received from customers. In cash basis accounting...
1 Pages(250 words)Coursework

International Accounting

The Profit and Loss for 2006 of PSA Peugeot Citroen is presented Vertically as depicted in its annual report. Further, there are ‘Functional breakdown’ of expenses, as the headings of expense accounts are as per functions performed, e.g., Cost of Goods and Service sold, Selling, General, and Administrative Expenses, Research and Development Costs, and like that.

Legal Reserve is the reserve as required by any national law of the country of the European Union. This is depicted in the subhead of ‘Retained Earnings’ under ‘Equity’ of PSA Peugeot Citroen's Balance Sheet in accordance with Article 9 of the Fourth Schedule.

“Legal reserves are a mechanism whereby management...
10 Pages(2500 words)Case Study

Accounting & Financial Management

AWB’s operations can be categorized into areas ranging from ‘pool management services’ to ‘harvest financing’, and ‘International commodity management’. Only a company with such a big range of activities and financial outlays can become the benchmark for an equally big company like ‘Woolworth Limited’.

The performance of an entity can be better analyzed through its profitability analyses. The profitability ratios like Gross Profit ratio, Net Profit Margins, Return on assets (ROA), and Return on Equity (ROE). The calculations of such ratios are shown in the attached annexure. The Gross Profit ratio measures the percentage of each pound or dollar of sales remaining aft...
10 Pages(2500 words)Assignment

Accounting for Leases

The classification needs to be made at the inception of the lease itself. Risk, with respect to leasing, refers to the possibility of loss arising on account of under-utilization or technological obsolescence of the asset. Reward means the incremental net cash flows that are generated from the usage of the asset over its economic life and the realization of the anticipated residual value on expiry of the economic life. A lease which cannot be classified as a finance lease is known as an operating lease. In the following situations a lease is classified as Finance lease:
The lower of the present value of minimum lease payments and the fair value of the asset is recognized as an asset and liability. The minimum lease payments a...
6 Pages(1500 words)Assignment

Accounting systems and Assurance

The allocation of resources is dependent on the information regarding the financial condition of the firm. Here comes the role of accounting, which provides all the required financial information to the investors through several financial reports. There There are two classifications of accounting 1) financial accounting and 2) management accounting. Financial accounting is the one which furnishes all the financial information to the investors and management accounting is used at the micro-level where the internal allocation of the funds takes place. Accounting is one of the most crucial components of any organization as it provides all those financial information that is used to make the economic and financing decision making.&nbs...
9 Pages(2250 words)Coursework

Free Cash Flows Theory

These are not hard and fast rules in determining the capital structure which should best affect a firms value. These theories lay down the benefits and the costs when a firm chooses what it sees as an adequate mix to maximise the shareholders value.

One of the implications where this research can lead include the possibility of the effectiveness in maximising shareholder value by employing two or more theories in capital structure decisions. Because these theories are more conditional by nature, probing which combinations when used for capital structure decisions are more effective in arriving at the goal of maximising firm value can be another subject for further research.
The role of capital structure in increasi...
11 Pages(2750 words)Case Study

Evaluation of Performance of a Bank Using Published Accounting Data

... be evaluated by a number of ways such as checking the rating agencies and listings, going through customers reviews, independent analysis based on published accounting data, instructional guides and FDIC bank statistics and research.8 The most common method that is used to evaluate the individual performance of the bank is through its financial statements. The published accounting information that is usually given in the form of financial statements include Statement of financial position (Balance sheet), Statement of earnings (Income statement), and Cash flow statement and Statement of activities (Kenneth, 1996). The financial ratios can be determined based on the information collected form these statements. To analyse the profitability...
7 Pages(1750 words)Case Study

Progress on G20 Summit on Accounting Standards

The said declaration contains the results of the discussions of the G20 leaders related to the current financial crisis. It contains what the G20 believes are the causes of the financial crisis and the actions to be taken.

The said declaration contained the short-term (classified as immediate actions) and medium-term actions that the G20 members think should be done to achieve true financial reforms. As part of the medium-term actions, the declaration states that “the key global accounting standard bodies should work intensively toward the objective of creating a single set of high-quality global standard”. It also stated that “regulators, supervisors, and accounting standard setters, as appropriate, s...
9 Pages(2250 words)Lab Report

Alternative Methods of Accounting

...The accounting profession was formally founded in 1494 when the Father of Accounting, Luca Pacioli, introduced the double-entry system in the textbook Summa de Arithmetica, Geometria, Proportione et Proportionalite (Weygandt & Kieso & Kimmel, 2002). Accounting has always been a self regulated profession. After the 2nd half of the 20th century changes in accounting occurred due to the influence of private organizations such as the FASB. In the United States accountants followed the generally accepted accounting principles (GAAP) to guide their every day work. Accounting is a discipline that is very strict in its ways and does not welcome change well. In the aftermath of the Enron and WorldCom scandal the government had to force change...
8 Pages(2000 words)Article

Cash Accounting vs. Accounting

Under cash flow accounting only transactions that result from cash inflow (i.e. receipts) and cash outflow (i.e. disbursements) are recognized and reported.
The other basis of accountancy that is practiced widely is accrual accounting. Most companies prepare their financial statement in conformity with generally accepted accounting principles that advocate accrual basis of accountancy. Majority of businesses in different nations do not fall under any organized sector. Those dealing in the unorganized sector believe that cash and other properties in possession of an entity determine the value of its business. They are not sure about outstanding transactions, as according to them recoveries always remain doubtful till there is ca...
16 Pages(4000 words)Research Paper

The Impact of Standardization on the Accounting Industry and Professionals in Spain

Standardization involves the formulation and implementation of technical standards essential in maximizing and enhancing safety, repeatability, quality, compatibility, and interoperability (Shailaja 319). For decades, the need for a smooth flow of commerce and trade led to the standardization of goods and services.
The process of standardization entails the development, formulation, and relevance of established standards. It involves the incorporation of scientific research and the utilization of experiences to establish the required and precise technical requirements for a particular aspect of innovation and technology. The result of the study and experience is a “standard.” A standard is a document formulated by...
13 Pages(3250 words)Case Study

The Nature and Significance of Listening Skills in Accounting Practice

 In addition to facilitating success in the accounting profession, listening skills contribute to social adjustment and participation. The major topics covered by the researchers are communication skills, accounting education, listening and communication practices. According to the researchers, most institutions consider listening skills as generic skills (Stone & Lightbody, 2012, p. 375). Teachers in these institutions do not consider listening skills as important skills in accounting practice. Most universities place emphasis on technical skills. Surveys on the importance of listening skills have put pressure on universities to raise awareness of these skills (Ameen, Jackson & Malgwi, 2010, p. 34). The researchers b...
6 Pages(1500 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Cash Accounting for FREE!

Contact Us