23 July 2009
as a transport corporation we collect prepaid tickets. if the prepaid tickets sold for april of the next finacial year then we are accounting it as income received in advance. auditor says that on acrual basis there is is no accrual. as the amt is received that can be accounted in the finacial year in which it is received. is this correct where can i get the guidence note on accrual basis of accounting
24 July 2009
My understanding: you are a transport corporation. You are selling pre paid ticket to passengers. There are instances the tickets are sold for the subsequent financial years also. Query: If tickets are sold for next financial year during the current year, should it be taken to income received in advance or should it be considered as income for this year? Answer: As per AS on Revenue Recognition, unless the entity fulfills its obligation in a contract, it cannot accrue the income. The obligation is fulfilled only on expiry of the period for which the ticket is sold. Just because the ticket is not refundable, you cannot take it as accrued in current year. Even if the services are paid in advance and the contract is signed, the corporation should wait for service delivery to account for the income.
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