Cash basis
You'll learn how the cash basis works for calculating taxable trade profits, including when income and expenses are recognised, how capital expenditure is treated, and the key advantages over the accruals basis.
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In this lesson
- 0:00 Cash basis fundamentals and key features
- 0:19 Capital allowances and expense treatment
- 0:32 Flat rate expenses and statutory adjustments
- 1:26 Advantages of cash basis over accruals
- 2:10 Worked example: calculating taxable trade profit
About this lesson
This video covers the core rules you need for TX and ATX exams, including practical applications like flat rate expenses and bad debt relief, with a worked example showing how to calculate trade profit using actual cash received and paid rather than invoiced amounts. The cash basis is the default method for unincorporated businesses, meaning you're only taxed on cash actually received and can only deduct expenses when physically paid. Unlike the accruals basis, capital expenditure (excluding cars) is deductible, and you benefit from automatic bad debt relief since you're not taxed on income you haven't received. The video walks through a practical example calculating taxable trade profit by identifying actual cash inflows and outflows, showing you how to distinguish between invoices (irrelevant) and actual payments (what counts), and how to handle capital items like vans correctly.
Duration: 4m
Transcript
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