Accrual for sales?

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT member discussion
I was just wondering, what is the score with accruing revenue? Have never worked in practice or come across it in studies or elsewhere...

Does anyone know what the standards say about this? or which FRS/IAS

I mean whats the general rule to avoid conflicting with prudence? Does a legal contract have to be in place and the actual work performed but not invoiced for it to occur?

Thanks.

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accrual for sales?

    Accruing for sales is very dodgy ground and the revenue like to investigate this type of thing with glee.

    Your best bet is to look at FRS 5 application note G which incorporated IAS 18. As far as prudence is concerned you should ignore this as an outmoded concept with regard to revenue recognition.

    Basically if you are talking about contractual work which has not been invoiced you can recognise revenue upto the costs incurred therefore creating nil profit. However if costs are invoiced before Y/E there is no need to worry. You must also consider any contractual terms i.e sale and return, penalties for over-runs etc

    Application note G also affects WIP, especially professional practices such as solicitors/accountants as partner time which is usually not recognised must now be accounted for. So you must also consider the affects of unbilled costs on WIP.

    It is very complicated - if you have an up to date standards book or check the internet you should find examples that will give you a better understanding.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Accrual for sales?

    Thanks John, like you say it seems complicated (may I say minefield?)and im going to have do some more reading. Its made worse by the fact i really need to learn it for international standards as well.

    My lecturer keeps highlighting the fact prudence appears to being thrown out of the window. On Friday we were lookng at revaluations and the fact that in international standards you can actually now revenue in the income statement from revaluation upwards where there has been a previous revaluation downwards.

    Also wouldnt it be nice if standards were freely available to browse on the internet?

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