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Principles of Cash Recognition CBA and ABA

The accounting principle you choose depends on how much personal income tax you pay for the previous accounting period. The choice of the principle may be relevant for persons starting a sole proprietorship, where the activity is started on a cash basis.

If the situation does not require a switch to the accrual method now, the sole trader can decide whether to stay with the cash accounting principle or whether it is better to switch to the accrual accounting principle.

Cash Basis of Accounting (CBA)

When cash is received, we will account for it as income in the period in which the cash is received
We will account for the expenditure of cash as an expense in the period in which the cash is spent

The Inland Revenue imposes a change to the accrual basis of accounting (ABA) when:

The resident is registered for VAT
Personal or newly acquired fixed assets are attributed to the pursuit of an individual activity (FR0457)
The voluntary change to the accrual method can only be made from the beginning of the new accounting period. Once the accrual method is applied, it will be applied until the end of the activity.

Accrual basis of accounting (ABA)

Revenue is accounted for the period in which the sale is made, i.e. when the invoice is issued
We account for costs in the period when the purchase of services or materials has taken place, i.e. the supplier's invoice is received
For more information on the accounting principles of CAB and ABA see here (for businesses in Lithuania).

Updated on: 12/12/2023

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