Cash accounting for SMEs championed by IoD

News Article - 13 October 2011
Category: Business

The premise of cash accounting for small and medium-sized enterprises (SMEs) is being championed by business network, the Institute of Directors (IoD).

The organisation believes the system more accurately reflects non-accountants' understanding profit.

The body commented on the Office of Tax Simplification's (OTS) recent discussion paper,A simpler income system for the smallest businesses, suggesting: "Many small businesses probably already use cash accounting, without the Revenue's noticing."

Numerous accountants have dismissed the idea of implementing cash accounting, suggesting accruals accounting is so deeply ingrained that it would be more complicated to take a backward step to a supposedly simpler, easy-to-use system.

Meanwhile Richard Baron, head of taxation at IoD, believes the OTS' latest comment is a step in the right direction.

"Cash accounting is definitely the leading option. It is crazy to continue as now, and require thousands of people running small part-time businesses to grapple with the technicalities of accountancy," he said.

Danielle Stewart, business services partner at Baker Tilley, suggests all accounting software is geared towards accruals and that for this reason alone, cash accounting makes little sense.

However, cash management is important for small businesses to ensure their money is working as hard as possible for them.

Integrated cash management software enables daily routines such as credit control, bank reconciliation and payments to be handled quickly and efficiently, making the best use of staff time and effort.

Particularly for financial directors, cash flow forecasting tools ensure SMEs can better plan their business' future.

Robust and flexible business forecasting tools enable small firms to cope with the most demanding cash flow scenarios, pre-empting financial pitfalls and helping them to protect forward balance sheets and crucial working capital requirements.

Article keywords: accounting, IOD, SME, small business

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