Last month, a new Sdn Bhd director called me and said:

“Can I prepare my accounts on cash basis?”
“Very unfair to pay tax when customers not pay yet!”
“Government untung. We suffer!”

I almost fainted.

Not because it’s a common question from directors but because this thinking is what quietly gets many SME directors into audit, tax, and legal trouble later.

Cash basis feels fair.
Cash basis feels simple.
But for a Sdn Bhd, cash basis is not allowed and not compliant.
Malaysian law is clear.

Once you are a Sdn Bhd, you must use accrual accounting, not cash basis. This is required under the Companies Act 2016 and accounting standards such as MPERS and MFRS.

There is no option.

Yes, LHDN allows very SMALL sole proprietors and partnerships to keep simple cash books. But that concession does not apply to companies.

By small it mean, the business is below the following thresholds:

Sale of goods …not exceeding RM150,000
Provision of services …not exceeding RM100,000

The moment you incorporate:

• Company law applies
• Accounting standards apply
• Cash basis is no longer acceptable

Cash basis is not wrong. It is just wrong for companies.