Traditional accounting (also known as “accrual basis” accounting) is a kind of accounting that calculates your profits based on when you send invoices or when you receive them – regardless of whether you actually received or spent money.
The kind of accounting that looks at when you spent or received money (not invoices) is called cash basis accounting instead. It’s much more straightforward, and almost all sole traders use it.
When do you use traditional accounting if you’re a sole trader:
- when you register as self-employed, you need to choose either cash basis or traditional accounting. You’ll usually choose the cash basis, as it’s the easiest to use
- you can only use the cash basis accounting if you earn under £150,000 (used to be £83,000).
- once you earn over £300,000 from self-employment, you must switch to the traditional method.
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