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Cash basis for 'P & L A/c'
If I understand the proposals correctly the annual Trading Statement (to be produced instead of a Profit and Loss Account) would be on a receipts and payments basis (or 'cash basis', if you prefer).
The logic is that this would avoid the need for any accruals basis records where a business already accounts for VAT on the cash basis.
These 'cash basis' figures could then be used for tax purposes.
However the 'Statement of Position' (replacing the Balance Sheet) would include disclosure of debtors, creditors and shareholders' funds. If I am not mistaken that WOULD require the use of the accruals basis. That perhaps defeats the object of preparing the Trading Statement on the cash basis!
The proposal appears to be that the Statement of Position would be attached to the company's Annual Return to Companies House (in effect replacing the current requirement for abbreviated accounts).
The thinking seems to be that this would involve less work than the provision of abbreviated accounts and therefore could be completed more quickly after the financial year end. So the Annual Return and Statement of Position would be required to be filed at Companies House 12 weeks after the year end.
I think these proposals would merit careful examination and constructive criticism.
It seems to me that if the Trading Statement is to be prepared on a cash basis then the Statement of Position should also be prepared on a cash basis - excluding trade debtors and creditors. Otherwise there will be an apparent inconsistency between the two documents.
David
Simpler Reporting
Xero, the online accounting company, together with a couple of the UK's leading regional accountacy practices, have today publicly expressed their views about the implications (there's a press release out on the newswire). I urge accountants and their micro business clients to find out more.
I'm a small business owner established since 1995, and I personally concerned about the practical day-to-day implications of any changes and urge govt to think very seriously before taking any steps.