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VT Transaction+

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Cash basis and accruals basis accounting

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Cash basis accounting

This means accounting for income and expenditure when payment is received or made. Unincorporated business can use the cash basis. Limited companies cannot use cash basis accounting and must use the accruals basis.

Accruals basis accounting

This means accounting for income when it is earned and expenditure when it is incurred, regardless of when payment is received/made.

For example, if you sell goods to a customer in March 2024 but they do not pay you until June 2024, the income is accounted for in March 2024.

Limited companies must use the accruals basis. Unincorporated business can use the accruals basis if they opt to do so, by ticking the relevant box on their self assessment tax return.

If you use the customers and suppliers ledgers in VT Transaction+, then you are accounting under the accruals basis, since VT Transaction+ accounts for income on a sale when you enter a sales invoice in the customers ledger (and similarly, expenditure is accounted for when you enter a purchase invoice in the suppliers ledger).

Using the cash basis in VT Transaction+

VT Transaction+ is designed for accruals basis accounting. The chart of accounts templates contain customers and suppliers ledgers, which enable income and expenditure to be accounted for when you enter invoices to customer and supplier accounts.

However, you can prepare your accounts under the cash basis by not using the customer and suppliers ledgers, and instead, recording sales and purchases when payment is received/made using the REC (receipt) and PAY (payment) transactions.

Alternatively, if your bookkeeping needs are simple, you can use the free program VT Cash Book, which enables receipts and payments to be recorded.

Unincorporated businesses changing from accruals basis to cash basis

If you wish to change from the accruals basis to the cash basis you will need to make the necessary adjustments to convert your accounts (any adjustment can be recorded in VT Transaction+ by a journal entry - the JRN transaction type).

Unfortunately, VT Software cannot advise on these adjustments. Therefore, you should speak to an accountant if you wish to convert your accounts from the accruals basis to the cash basis.

Alternatively, you can continue to use the accruals basis if you opt-in to do, so by ticking the relevant box on your self-assessment tax return.