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Period in which receipt assessable or deduction allowable

B2.501 General principles

It is important that the receipts and expenses of a trade are allocated to the correct accounting period so that trading profits (or trading losses) for that period can be calculated accurately. The tax legislation requires trading profits to be calculated in accordance with generally accepted accounting practice (GAAP), subject to any adjustment required or authorised by law¹. In the context of calculating profits of the trade, references to receipts and expenses are to those amounts which are posted to the profit and loss account as credits or debits².

This does not necessarily mean that these amounts have actually been received or paid³, as GAAP usually uses an accruals basis for calculating trading profits.

It should be noted therefore, that these provisions do not generally apply to profits calculated on the cash basis for unincorporated businesses (see further B2.111), which does not require the accruals basis of accounting to be applied