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It is called the 'Accruals concept', expediture must be matched to it's revenues. This is a fundamental principal of accounting. It would be extremely novel fo

It is called the 'Accruals concept', expediture must be matched to it's revenues. This is a fundamental principal of accounting. It would be extremely novel for tax to be on a 'cash basis', but I'm sure there are places it is true. I think it might be an option on micro entity accounts for instance. A classic example of this in action is with stock/inventory. Things still in stock at the end of a period don't hit the profit in that period, only things that are sold.

rvba 3y ago
Tax result <> Bookkeeping result. In fact bookkeeping result as per US GAAP van be different than the result under IFRS or regulations of other countries (for example due to different approach to depreciation). Many countries calculate tax excluding accruals to stop fraud. When you have the cash now and need to pay tax next year, you could as well "run away with the money". Or even not run with the money, just spend it - and then end up unable to pay tax for two years. Technically this fraud could be committed at any moment, but when the cash would lie on your account for a year, you could think abiut it more often. Also conceptually: if accruals are allowed, you can basically shape your tax result to never pay any tax? Make bigger accruals every year.
- bruce511 3y ago
  >> if accruals are allowed, you can basically shape your tax result to never pay any tax? Make bigger accruals every year. That's not really how they work. You don't get to just make up a number (at least we dont). You can only defer income that's for work not yet done. For work you did do you get taxed. But I appreciate all the replies, and it goes to show how tax policies change from place to place. Which is why you don't get advice from the Internet- you get it from local accountants and lawyers.
ghaff 3y ago
It's not at all novel. Small businesses in the US typically have a choice (C corps do not AFAIK) to use cash-basis accounting rather than accrual. Which makes sense. If they're not making large capital investments that they hope will result in revenue over time, they're largely cash flow businesses.

rvba 3y ago

Tax result <> Bookkeeping result. In fact bookkeeping result as per US GAAP van be different than the result under IFRS or regulations of other countries (for example due to different approach to depreciation). Many countries calculate tax excluding accruals to stop fraud. When you have the cash now and need to pay tax next year, you could as well "run away with the money". Or even not run with the money, just spend it - and then end up unable to pay tax for two years. Technically this fraud could be committed at any moment, but when the cash would lie on your account for a year, you could think abiut it more often. Also conceptually: if accruals are allowed, you can basically shape your tax result to never pay any tax? Make bigger accruals every year.

bruce511 3y ago
>> if accruals are allowed, you can basically shape your tax result to never pay any tax? Make bigger accruals every year. That's not really how they work. You don't get to just make up a number (at least we dont). You can only defer income that's for work not yet done. For work you did do you get taxed. But I appreciate all the replies, and it goes to show how tax policies change from place to place. Which is why you don't get advice from the Internet- you get it from local accountants and lawyers.

ghaff 3y ago

It's not at all novel. Small businesses in the US typically have a choice (C corps do not AFAIK) to use cash-basis accounting rather than accrual. Which makes sense. If they're not making large capital investments that they hope will result in revenue over time, they're largely cash flow businesses.