Cash vs accrual (urgent)
This query is : Resolved
07 July 2013
I m an Auditor for a Society which is running Educational Institutions, There is uncertainity of Incomes, as the Students wont pay their Fee as and when it is Due. Thus considering the concept of Prudence, can i suggest to Account Receipts on Cash Basis and Expenses on Accrual basis??
To get Exemption U/s.12A, entity has to apply 85% of the receipts for charitable purpose. Thus if the organisation doesn't receive real Income in cash and Accrual entry is passed for Student fee receivable, from where should it satisy the 85% condition??
Early clarification is highly appreciated. Thank you
To get Exemption U/s.12A, entity has to apply 85% of the receipts for charitable purpose. Thus if the organisation doesn't receive real Income in cash and Accrual entry is passed for Student fee receivable, from where should it satisy the 85% condition??
Early clarification is highly appreciated. Thank you
08 July 2013
Partial Cash basis and partial accrual basis accounting shouldn't be followed here. It should be either cash or accrual and followed consistently...
If I can understand your concern correct - Then please note, 85% application even not necessary to be in cash.let's suppose one expenses you have incurred during the FY but not paid, still you can take this as application of income if accrual basis of accounting is followed.
Also read what Income Tax Act says----
: If, in the previous year, the income applied to charitable purposes in India falls short of 85%
of the income derived during that year from property held under trust, by any amount –
(i) For the reason that the whole or any part of the income has not been received during that
year, and the assesse submits a declaration to the Assessing Officer on or before the due
date of filing of return that such income shall be applied to such purposes in the year of
receipt or in the immediately succeeding year, then the amount for which such declaration
is given shall be deemed to be applied to such purposes during the previous year in which
income was derived. If such sum is not applied to such purposes in the year of receipt or in
the immediately succeeding year, then the amount not so applied shall be deemed to be the
income of the previous year immediately succeeding the previous year in which such
income is received.
If I can understand your concern correct - Then please note, 85% application even not necessary to be in cash.let's suppose one expenses you have incurred during the FY but not paid, still you can take this as application of income if accrual basis of accounting is followed.
Also read what Income Tax Act says----
: If, in the previous year, the income applied to charitable purposes in India falls short of 85%
of the income derived during that year from property held under trust, by any amount –
(i) For the reason that the whole or any part of the income has not been received during that
year, and the assesse submits a declaration to the Assessing Officer on or before the due
date of filing of return that such income shall be applied to such purposes in the year of
receipt or in the immediately succeeding year, then the amount for which such declaration
is given shall be deemed to be applied to such purposes during the previous year in which
income was derived. If such sum is not applied to such purposes in the year of receipt or in
the immediately succeeding year, then the amount not so applied shall be deemed to be the
income of the previous year immediately succeeding the previous year in which such
income is received.
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