Revenue recognition on advance received

Hi dipjyoti

Im sharing my views on ur question. Other expert views are eagerly awaited.

While answering this, two financial areas must be considered. First is AS – 9 ‘Revenue Recognition’ and latest boom in indirect taxes ‘Point of Taxation Rules’ since company has received an advance for rendering of services.

AS – 9 has said that revenue to be considered only when service is completed. It deals with receipts and receivables etc. but advance received by company is neither receipt for rendering services nor it is receivable. It is an advance, hence as per AS-9, it shall not be treated as income but it has to be shown as an advance in balance sheet.

In respect of aforesaid rules, invoice has to be issued within 14 days and service tax has to be paid etc. etc. This is all applicable for payment of service tax and it has nothing to do with revenue recognition.

Hence, in my view, such advance shall not be treated as revenue but will come in balance sheet as advance.

Para 12 of AS 9 states -