I am a finance manager of a company with £1m t/o. It has grown and expanded by concentrating on cash rather than the P&L. Should it continue to do so and not bother with looking at performance on an accrual basis?
John Vale
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Cash Accounting v Accruals
The only businesses that should be using cash accounting are lawyers and solicitors, because of the nature of their trade.
Cash accounting for the production of VAT Returns is an accounting concept purely used as a means to an end. ie not payingover VAT before you have been paid it in the first place.
Whilst cash growth can be easily identifiable in a growing business, ignoring profitability will have dire consequences in the short to medium term and infinitely more so should there be an economic squeeze, where the cash inflow dries up.
Good housekeeping, in any business is a pre-requisite and although one doesnt mind losing the odd crisp from a full packet, one would certainly mind if there was only a few at the bottom of the packet to start with!
Besides, you will certainly have to produce Annual Accounts in line with Standard Accounting Principles and these are exercised under the Accruals Basis.