Cash accounting is also known as cash accounting . This is the simplest form, since income is booked when products are received, and expenses are booked when expenses are paid.
However, it cannot be used in every company.
Cash accounting is based on cash flows, with sales recognized when the company receives payment from the customer. Similarly, in cash accounting, purchases are taken into account when they are paid for.
These flows are recorded in the accounting journals, according to the bank statements and the cash book. It is therefore advisable to file vouchers chronologically.
Which companies can use cash accounting?
BNC companies and BIC companies with sales of no more than €818,000 excluding VAT for trading activities and €247,000 excluding VAT for service activities may opt for cash accounting.
BIC companies must, however, include all invoices not yet collected and unpaid debts at year-end. This means a return to accrual accounting. The balance sheet and income statement will therefore be identical regardless of the accounting method used throughout the year.
Is it necessary to call in a chartered accountant when deciding to carry out cash accounting?
Even in the case of cash accounting, it is advisable to entrust this task to a chartered accountant. In-house management of accounting and tax work is time-consuming and requires technical knowledge of accounting and taxation that you may not possess.
What's more, today's chartered accountant has a role to play as an advisor to the company director , and it would be a shame to do without it.
Why opt for collection accounting?
Cash accounting is easier to use, requires fewer entries and therefore saves time. It enables cash receipts and disbursements to be recorded throughout the year, based on cash flows.
In addition to the annual accounts, balance sheet and profit and loss account, which are equivalent with accrual accounting, bookkeeping and auditing are simplified with cash accounting. This means lower fees for your accounting firm.
What are the limits of cash accounting?
A company that opts for cash accounting has no ledger of unlettered third parties, which would enable it to keep precise track of supplier payments and customer settlements. If the company has many customers and suppliers, it may find it difficult to control cash inflows and outflows.
Since cash accounting is based solely on cash flow, it cannot anticipate future movements in the bank account.
Finally, tax management can be complicated, especially if the company declares and pays its VAT on a monthly basis. To do so, it must declare transactions according to the date invoices are issued, rather than when they are paid or collected.
Written by our expert La Rédaction
August 27, 2020
