Cash Vs. Accrual: Which Method Should You Use To Calculate GST On Your BAS?

BAS stands for business activity statement and is a form that businesses must submit to the Australian Taxation Office (ATO) on a regular basis. One of the key sections of your BAS is Schedule 1, which calculates your gross profit margin and thus determines an important component of your GST calculation. Gross profit margin represents how much money you earn from each of your sales before expenses, and is a key indicator of the health of your business.

We’ll look at the features of each method, discuss their advantages and disadvantages, and ultimately provide our thoughts on which is the right choice for you.

Cash Basis Accounting

Cash basis accounting is an accounting that only records transactions when money actually changes hands. This means that income is not counted until it has been received and expenses are not counted until they have been paid.

This is obviously a very simple method because it represents things from the perspective of an actual business day. Income is only recorded if it actually has been received on that day and expenses are only recorded if they have actually been paid out on that day. 

Accrual Basis Accounting 

The accrual basis is an accounting system where income is counted when it’s earned and expenses are counted when they’re paid, regardless of whether or not they’ve actually been received or paid on that day. Income is recorded even if it hasn’t been paid out and expenses are recorded even if they haven’t actually been received and paid by the company.

The main benefit of this method is that you’re able to see a bigger picture of your business’s financial health with regard to income and expenses. It allows you to evaluate whether or not your business accurately records its income as it’s earned and expenses as they’re paid.

Which Method to Use?

So, should you use cash basis or accrual basis accounting on your Business Activity Statement? The short answer is that it largely depends on how your business operates and the reasons behind its operation. For example, a retail business will likely have a lot more transactions than an online business with fewer products. This may make the cash basis accounting method more suitable for smaller businesses, while the accrual basis may be better suited for bigger ones.

On the other hand, an online business will have fewer transactions to count on a daily basis than a retail business. This may mean that it makes sense to use cash basis accounting with less bookkeeping overall. However, you need to weigh up the benefits of cash basis accounting against the disadvantages, as well as your company’s operations.

It can be difficult to know which method makes more sense for your business. It’s important that you consider all the factors before making your decision on whether or not to use cash or accrual basis accounting. You will be eligible for the cash basis method if:

  • You are a small business with an annual turnover of less than $2 million 
  • You run and collect GST on a cash basis
  • You are registered as an endorsed charity or a government school

If none of these conditions matches your business, then you can go ahead and register for the accrual accounting scheme. It’s important to note that even if your business qualifies for cash basis accounting, it may sometimes make sense to use accrual accounting when preparing your BAS. 

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