Cash accounting for SMEs and start-ups

If you are business owners who have a simple business structure and set-up, with annual turnover < S$1million, cash accounting allows you to record income when receive and expenses when pay – unlike the traditional accrual accounting, easing cashflow management.

This helps small businesses conserve cash, and avoid cashflow strain by aligning tax obligations with actual cash movement, where liquidity is of upmost importance.

Do note the risks and limitations – once the revenue threshold is exceeded, accrual accounting is mandatory. Cash accounting may distort profitability trends since it ignores unpaid invoices. And it’s important SMEs formally apply to IRAS to use the scheme and continue it’s tax compliance. Record keeping is crucial and payments and receipts are to be tracked diligently. Always prepare in advance – once your businesses scale, ensure transition to accrual accounting.