From When is a Change from Cash Accounting to Accrual Accounting Mandatory?

An important aspect of value-added tax is the decision between cash accounting and accrual accounting. But from when is a change from cash accounting to accrual accounting mandatory? This article explains the relevant turnover thresholds that may trigger a mandatory switch, as well as the potential advantages of accrual accounting.

Cash Accounting vs. Accrual Accounting: Definitions

• Cash Accounting: In cash accounting, the value-added tax is only paid to the tax office once the invoice has been settled by the customer.

• Accrual Accounting: In contrast, in accrual accounting, the value-added tax is due as soon as the invoice is issued – regardless of whether the customer has already paid or not.

Advantages of Accrual Accounting

Even if the switch to accrual accounting is mandatory in some cases, it can still bring advantages for companies:

1. Liquidity Advantage: Through accrual accounting, the value-added tax is collected and paid promptly, which facilitates liquidity planning.

2. Planning Security: Since the tax is due regardless of the payment receipt, financial planning is more clearly calculable.

3. Simplified Accounting: The settlement of value-added tax is based on issued invoices – this can simplify the accounting process.
    

From When is Accrual Accounting Mandatory?

Companies are only allowed to apply cash accounting if they meet certain conditions. If they exceed certain turnover thresholds, they are legally obliged to switch to accrual accounting. In Germany, the following applies:

• Turnover Threshold: If an annual turnover of more than 600,000 euros is exceeded, the option for cash accounting lapses in the following year.

• Previous Year's Turnover: The turnover development in the previous year is decisive for assessing the type of tax in the current year.
   

It is therefore important to regularly review turnovers. If the threshold is exceeded, the switch to accrual accounting is mandatory and must be implemented in a timely manner. Close coordination with the tax advisor is essential in this regard.

EGIDO GmbH provides comprehensive support to its clients in analyzing their turnover structure and accompanies them throughout the entire process of the mandatory switch to accrual accounting – for secure and legally compliant tax planning.