Blog

Which are the Advantages and Disadvantages Of Cash- Basis Accounting in Dubai?

Audit
Which-are-the-Advantages-and-Disadvantages-Of-Cash--Basis-Accounting-in-Dubai-

When you are running a business, in Dubai or anywhere else, it is necessary that the accounts are done in the most proficient way, using the best software application and by hiring the most skilled accountants or accounting firms in Dubai. However, one thing you need to decide-whether the cash basis accounting method will be used or you should opt for accrual basis accounting? Small businesses typically choose the former method.

In cash-based accounting, transactions are recorded only when the cash is either received or spent. It does not record product delivery or completion of service as a transaction. On an Accrual basis, delivery of services and products may be recorded as transactions even before actual cash is received. Payable get recorded even in absence of cash payment.

Choosing the Right method

You have to go through Dubai taxation norms before picking from any of the 2 accounting methods. In some cases, you may not use either cash or accrual method and a hybrid method may fit the bill. A tax consultant or agency in Abu Dhabi, UAE can guide you on this. There are some businesses that still prefer the cash method. This has both advantages and drawbacks and it is important you get your facts clear on these.
Pros

  • Easy to comprehend and handle- There is no denying that cash basis accounting is simple to understand and handle. For small businesses with the limited operation, this is actually the ideal method. You need not keep or hire a third party consultancy agency in Dubai, UAE to handle such tasks.
  • Cash flow- The method shows a cans flow like a statement. So, you can figure out the exact amount of cash your company has at any specific moment.
  • Singular entry- It can be dealt with a simple, solo entry system. So you need not use a complex accounting program.

Cons

  • The drawback of single entry- The single entry system may be advantageous for small entities but it can be erroneous for large-sized or growing companies. In the accrual method- double entry is necessary which offers better control.
  • Short term picture- The cash basis method shows a cash flow but that can often be misleading! It does not show those earnings that have been invoiced but still not received. It also leaves out the upcoming expenses that have been invoiced but have not been deducted. It can be quite misleading too. For instance, in one month you may find the revenues are high. However, on the closer analysis, you may find the extra cash was paid by customers who cleared their due bills!

Summing it up

Which accounting method you will select for your Dubai based venture, depends on a few factors. You have to think of the type and size of the business- to begin with. On average, small-sized companies with a limited number of employees can manage with cash basis accounting. However, for the mid to large-sized companies, that need to deal with several vendors and plenty of transactions – the accrual method is more prudent. In any case, your company can benefit from seeking help from professional accounting firms in Dubai.

For more information on this topic, please visit our Blogs Section or Contact Us

For enquiries, call +971 5679 52590 / E-mail: info@aviaanaccounting.com

Related Articles:

  1. Top Ranked 10 Audit Firms in Dubai UAE 2024: Guide and Reviews
  2. Audit Firms in Khalifa Industrial Free Zone Abu Dhabi – KIZAD
  3. Audit Firms in Abu Dhabi
  4. Audit Firms in Fujairah
  5. Audit Firms in Ajman
  6. Audit Firms in Sharjah
  7. Top Audit and Accounting firms in Dubai, Abu Dhabi, Sharjah, UAE (2023)
  8. Audit Firms in Ras Al Khaimah- RAK
  9. Approved Auditors in Dubai Silicon Oasis Authority
  10. Approved Auditors in DAFZA- Dubai Airport Free Zone Authority
  11. Approved Auditors in Dubai Design District – the D3
  12. Which are the Advantages and Disadvantages Of Cash- Basis Accounting in Dubai?
  13. Which are the Accounting Missteps That Most Entrepreneurs Make in Dubai?
  14. Which are the Best accounting apps for Dubai based Startups?
  15. How does Outsourcing of Accounting work in KSA?
  16. What are Methods of Error Detection While Auditing for Dubai and Abu Dhabi?
  17. What are Questions to be asked to CPAs to Reduce Audit Risk in Dubai?
  18. What is Dubai Silicon Oasis (Free zone in Dubai)?
  19. What are Principles for DMCC Approved Auditors in Dubai?
  20. What is Importance of Hiring Best Audit Firms in Dubai for better Tax planning?
  21. What are Qualities in Approved Auditor in DMCC (Dubai)?
  22. What is Role of Auditors in Abu Dhabi and Dubai?
  23. How does Audit work in DMCC in Dubai?
  24. How does Audit work in JAFZA in Dubai?
  25. How does Audit work in SAIF Zone in Dubai?
  26. How does Audit work for Free Zone companies in Dubai and Abu Dhabi?
  27. How does Audit work in Dubai South?
  28. What are Functions performed by internal auditors in Dubai?
  29. Bahrain Guide: What is VAT Audit?
  30. UAE Guide: What is VAT Audit in Dubai?
  31. UAE Guide: What is FTA Audit File of VAT in Dubai?
  32. Role of Internal Auditing In Change Management
  33. What is Auditing Evidence? How External Auditors support their Opinion?
  34. How Artificial Intelligence Will Change the Auditing Function
  35. Value Addition for Business with Auditing
  36. Compliance and Auditing: Are these both the Same?
  37. Auditing Role in Modern Cybersecurity Challenges