Small Business Accounts

Important: New legislation is timetabled for Royal Assent, it changes the requirements for filing accounts at Companies House. You can read a GovUK fact sheet here.

Contents

Overview

There are 2 main accountancy methods for small business and self-employed sole/partnership traders to keep track of your financial transactions, including:




Limited companies have additional reporting requirements related to the size of the company and turnover.


It's important for businesses to choose the right method of accounting for their needs and to comply with legal requirements.

Cash Basis Accounting

Cash basis accounting is a method of accounting in which revenue is recognised when cash is received, and expenses are recognised when they are paid. In other words, transactions are recorded only when cash changes hands.


For example, if a company sells a product for £100, the revenue is not recognised until the customer pays the £100. If the company buys supplies for £50, the expense is not recognised until the company writes a check or pays the bill.


Cash basis accounting is simpler than accrual basis accounting, which recognises revenue when it is earned and expenses when they are incurred, regardless of whether the cash has changed hands.


In simple terms, cash basis accounting is a way of keeping track of a company's financial transactions based solely on when cash is received and spent.

Information for Cash Basis Accounts

To prepare cash basis accounts, you will need the following information:

Having all of this information available will help you to create accurate and complete cash basis accounts that provide a clear picture of the company's financial position and performance.

Prepare Cash Basis Accounts

To prepare cash basis accounts, follow these steps:










Accrual Accounting

Accrual accounting is a method of accounting that records transactions when they occur, regardless of when payment is made or received. This means that revenue (income) is recorded when it is earned, and expenses are recorded when they are incurred, even if the payment has not been received or made yet.


For example, if a business provides a service in February and the customer pays in March, accrual accounting would record the revenue in February when the service was provided, rather than in February when payment was received. 


This method provides a more accurate picture of a business's financial performance by considering all economic events that have taken place, rather than just the cash transactions.

Information for Accrual Accounts

To perform accrual accounting, you will need to gather and track the following information:

Having accurate and complete information is crucial for effective accrual accounting, as it helps to provide a more comprehensive and accurate picture of your business's financial performance.

Prepare Accrual Accounts

To prepare accrual accounts, you can follow these steps:

Having a good understanding of accrual accounting and following these steps can help you prepare accurate and comprehensive accrual accounts for your business.