BIM31115 - Tax and accountancy: timing of income and expenditure: UK GAAP

Revenue officers should refer to Revenue accountants if they have particular queries on the application of UK GAAP.

There are three general guidelines governing the recognition of income.

Income is recognised as it is earned.

This is when goods are delivered or services are provided. This is easy to recognise when it is a simple retail sale but more complex or lengthy transactions may not be straightforward. Where a long term contract is accounted for under SSAP9 some of the income is recognised as identifiable stages of the contract are completed, without waiting for the whole contract to be complete.

Income should be recognised at the same time as the expenses incurred to earn those receipts

This may imply that income should be deferred, if the entity will have to incur expenses to earn that income in the future, or that costs should be carried forward, when they will earn income in the future. For example if a deposit is paid but the goods or services have not been provided then it is not appropriate to recognise that deposit on receipt, (see BIM31110 for more on deposits).

Entities used to defer a range of costs, for example marketing and development expenditure, to match against income in the future but FRS18 has placed a lot more emphasis on whether it is appropriate to recognise an asset. The current emphasis is much more to recognise expenditure when incurred unless there is a real and measurable expectation of economic benefit flowing from that expenditure in the future.

Income should not be recognised before the point when their ultimate realisation can be assessed with reasonable certainty

If the entity does not have to carry out any more actions to earn the money then it has been earned and the income should be recognised. However some sales may be made on a basis that there is a right of return, or goods may be provided subject to satisfactory installation and performance. These sales should be recognised when there is reasonable certainty.

Each case must be considered on its individual facts.