Which of the following is an advantage of the cash accounting scheme?

The cash accounting scheme offers particularly advantageous features for businesses, and one of the significant benefits is automatic bad debt relief. This means that under this accounting method, businesses only account for income received and expenses paid in cash, rather than on a credit basis.

When a business switches to cash accounting, it recognizes income only when cash is actually received. Consequently, if a customer does not pay their invoice, the business does not report that income as profit, leading to an effective form of bad debt relief. This strategy helps businesses manage their tax liabilities more accurately because they are taxed only on real cash flow and not on money that is owed but not yet received. By aligning revenue with cash flow, businesses can mitigate the negative effects of unpaid debts and maintain more straightforward cash flow management.

This benefit is particularly valuable for small businesses that may experience fluctuations in income and can help in planning and managing financial resources more effectively. In contrast, other options highlight aspects that do not reflect the typical advantages associated with the cash accounting scheme, such as increased frequency of returns or complicated record-keeping, which could potentially lead to more administrative burdens rather than simplicity.