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Accrued income treatment

leeGrant77leeGrant77 Registered Posts: 17
Whose up for this helping me on this one?
If a client provides IT services and sells that service on a 3 year fixed contract , should all of that value be recognised?
My view is that the double entry would be DR accrued income (BS) and CR sales (PL)
Then when the monthly invoices are created they CR the accrual account?



Comments

  • Pian32Pian32 Registered Posts: 259
    I would probably say the income is for work done in the period. So the full 3 year income would be spread evenly over that period.

    For the 1st and last year it might be necessary to apportion according to the months included.

    Effectively the income isn't earned until the work is done.

    imagine all the 3 year contracts were made on the same year (unlikely but will show why I'd use the method above). You'd end up with 1 year of huge income and then 2 of 0 income. By spreading the income out over the contract it's more representative of what is occurring during those years.
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  • davealucasdavealucas LondonMAAT Posts: 82
    You would only accrue income if you have completed the work and not invoiced your client. You would not accrue future income.
  • leeGrant77leeGrant77 Registered Posts: 17
    Thanks guys - always good to get another view
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