Cash basis accounting

Hi all,

I would like to ask regarding the recording of revenue for cash basis accounting for the recruitment agency business. as most of the time people dont pay after getting the service. so it will be good for company to record the revenue on a cash basis.please comment with appropriate reference.

Unfortunately, IFRS is accrual based, so recording revenue as cash is received is not consistent with IFRS.

Specifically, IFRS 15.31 states: An entity shall recognise revenue when (or as) the entity satisfies a performance obligation by transferring a promised good or service (ie an asset) to a customer. ...

This implies that revenue is recognized as the entity provides (the client receives) a service, not after the client pays for the service.

However, IFRS 15. 9 also states: An entity shall account for a contract with a customer that is within the scope of this Standard only when all of the following criteria are met: ...  (e) it is probable that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. In evaluating whether collectability of an amount of consideration is probable, an entity shall consider only the customer’s ability and intention to pay that amount of consideration when it is due (emphasis added).

This implies that if it is not probable (i.e. 50% or more likely) that the client will pay for the service, the company will apply IFRS 15 (and thus recognize revenue) only after the client pays for the service (or it becomes 50% or more likely that the client will pay).

This will, in effect, lead to cash-based revenue recognition.

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