Cash basis to accruals

Just at its most basic

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Hi all

I know there are specific steps to follow (not that I intend to, as the client is ceasing shortly and so splitting over 6 years is not possible), but just taking one area in isolation:

Say a client has rental accounts and pays, say, £500 per annum for accountancy, billed on completion of the work.  Currently cash basis.

So 19/20 cash basis, £500 paid in year relating to 18/19.  Fine.

If they were to move to accruals, will there then be £1,000 in the 19/20 year, as in £500 relating to the 19/20 year (billed in 20/21 but that's moot), but if we remove the £500 paid in the year but not relating to the year then it never gets any relief.

I've never done a cash to accruals shift, so perhaps that is normal?

Replies (6)

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By Duggimon
02nd Mar 2021 13:31

Assuming the simple situation where accounts are prepared then billed and paid in one go, you have year one under the cash basis with no accountancy fees, then however many years with one fee per year, then you switch to the accruals basis and the accounts show the current year and that year with no fees in one go, then you're all caught up.

I find it helps to think about it like that, the accruals basis brings it in line, it's not accelerating payments, it's removing the delay.

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Replying to Duggimon:
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By tom123
02nd Mar 2021 13:39

But presumably there has to be a year with 2 fees, ie last year's paid this year, and this year's accrual?

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Replying to tom123:
By Duggimon
02nd Mar 2021 13:46

Yes, that happens in the year of the switch, my point was that it's not an extra fee this year, or an early payment of a future fee, it's correcting the prior year with the missing fee.

I mean, I say correcting, the prior year wasn't wrong, I just think it's helpful to think about it with reference to that other period which balances things out.

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Replying to tom123:
RLI
By lionofludesch
02nd Mar 2021 15:06

tom123 wrote:

But presumably there has to be a year with 2 fees, ie last year's paid this year, and this year's accrual?

Yes - no problem with that. Nor with more than twelve months' sales being included.

All the differences get swept into the year of change.

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Replying to tom123:
RLI
By lionofludesch
02nd Mar 2021 15:06

tom123 wrote:

But presumably there has to be a year with 2 fees, ie last year's paid this year, and this year's accrual?

Yes - no problem with that. Nor with more than twelve months' sales being included.

All the differences get swept into the year of change.

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Replying to Duggimon:
Quack
By Constantly Confused
02nd Mar 2021 13:42

Thanks Duggimon, that does make sense.

It just obviously looked odd having twice the expense, but as you say it is swings and roundabouts.

Presumably if he ceased in 2020/21 on the cash basis he would have had the amount paid for 19/20, plus his 20/21 post cessation expense, so at some point he will always have two.

Thanks again, I'm more content now.

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