MyCIMA

Revenue recognition & Trade debtors

Posted: Tuesday 17 January 2012 by Anon
Replies : 2
Keywords: revenue recognition; trade debtors

I'm currently working with a recruitment company and we think we might have come across a little problem.

 

Currently they recongise revenue when a candidate accepts the job and signs the contract.  However, they don't invoice the client until the candidate has started work.  They're trade debtors however is the amount of the invoices raised plus the revenue that has been recognised.

 

As far as I can see there are 2 issues here - one of revenue recognition and the other of trade debtors. 

 

Question:  a)  when should revenue be recognised and what is the standard I should refer to?

b)  When should a transaction fall under the category of trade debtors?  Obviously the important factor is the invoice being raised.  Does this affect the classification?  If so what is the IFRS or standard being applied?

 

Please help - I'm in way over my head! 

Revenue recognition

Posted by Aneeb Farrukh on Wednesday 18 January 2012 07:38

Revenue recognition is dealt under IAS 18
Since you are a service providing organization IAS 18 has certain conditions which are to be satisfied before revenue in recognized in service sector those are
1. The amount of revenue can be measured reliably
2. It is probable that the economic benefits associated with the transaction will flow to the entity
3. The stage of completion of the transaction at the balance sheet date can be measured reliably
4. The costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

 Once the service has been delivered or used by the client by definition it should fall in the category of trade debtor. The bills are to be documented in the form of formal invoice.

kind regards,
Aneeb

Thank you

Posted by Anon on Sunday 22 January 2012 07:49

Hi Aneeb,

 

Thank you!