Tax Glossary

Traditional Accounting

White Arrow
Last updated on:
March 17, 2024

Traditional accounting, or "accrual basis" accounting, is a method where income and expenses are recorded when they are incurred, regardless of when cash transactions occur. This approach contrasts with Cash Basis accounting, which records transactions only when cash changes hands. Accrual basis is the more complex of the two, providing a more accurate picture of a business's financial health by recognizing revenue when earned and expenses when owed.

When to Opt for Traditional Accounting as a Sole Trader:

  • When you register your business, you'll choose between Cash Basis and traditional accounting. While Cash Basis is simpler and commonly chosen by sole traders, traditional accounting may be preferred for its detailed financial insights.
  • The cash basis is typically available for businesses with annual income below £150,000. However, should your business income exceed £300,000, you're required to switch to traditional accounting to maintain accurate financial records and comply with more comprehensive financial reporting standards.

Traditional accounting is ideal for businesses seeking a comprehensive financial overview, especially as they grow and their transactions become more complex.

By clicking “Accept”, you agree to the storing of cookies on your device to enhance site navigation, analyse site usage, and assist in our marketing efforts. View our Privacy Policy for more information.

Arrange your free initial consultation today.

Book Free Consultation
UK's best rated accountant 2021
Rated Excellent
5 Stars
on Trustpilot