The moment, when an accounting entity accounts for a taking (revenue) is of substantial importance both from the perspective of the accounting and from the perspective of the income tax.  Unlike the value added tax, where the date of taxable transaction is clearly defined, accounting regulations touch only marginally on this area and in this respect, income taxes take over data from the accounting without further adjustments. 

The basic stipulation, which relates to the posting of revenues, can be found in article 3, paragraph 1 of the Accounting Act, stating that transactions are entered into books on accrual basis, regardless of the time of payment.  Revenues thus need to be entered in books at the time of their emergence and the related cost needs to be entered in the same period.  This requirement is followed by the moment of realisation of an accounting case, which is an obligatory part of the accounting document according to article 11 of the accounting act and is subsequently described in ČÚS 001 – Accounts and principles of bookkeeping in accounts.  Unfortunately, the moment of realisation of an accounting case is only described by enumeration here as the day, on which the supply is fulfilled, monetary debt is paid, a receivable is collected, a receivable is assigned, a receivable is deposited, an advance provided or received etc. If we speak about takings, the date of fulfilment of the supply relates to the accounting of revenues.

In a number of cases, the date of fulfilment of the supply is clear, for example from the client’s signature on the delivery note or from the issuing of an acceptation protocol.  In practice, more complicated situations occur, not only from the perspective of the moment of posting the revenue, but also from the perspective of its valuation.  For example a situation, when the selling price of a product also includes two-years of maintenance or prolonged guarantee.  Should in such a case the entire selling price be posted as revenue at the time of supplying the product, or will it be partially accrued?  If accrued, how will the individual parts be valuated? And if not accrued, should a reserve be posted? And what if the client can return the goods? Or if he is subsequently provided a discount or receives a part of the products free of charge?

With the exception of the above-mentioned stipulations, we will not find specific answers to these questions in Czech regulations.  The form of valuation and pricing of these transactions should be described in the internal rules of the accounting entity.  When drawing up these rules, accounting entities may take inspiration from the International Financial Reporting Standards (IFRS).  In the standard IFRS 15 – Revenues from contracts with customers, the method for emergence of revenue and its valuation is described in detail and the standard is accompanied by a number of illustrative examples.  What is the view of the IFRS in terms of posting revenues then?

IFRS 15 approaches the issue of revenues in five steps:

1. Identification of the contract with the client
2. Identification of the individual contractual duties
3. Setting the total contract price
4. Division of the price into individual contractual duties
5. Posting of the revenues when fulfilling the individual contractual duties

Let us return to the above-mentioned example of sale of goods with subsequent two-year servicing free of charge for a total price of CZK 2m and let us apply the five-step model to it:

1. The contract on supplying product X with subsequent servicing
2. The duty to supply the product and the duty of two years of servicing
3. Contract price of CZK 2m
4. At this point, the IFRS 15 offers two versions of a solution – if the accounting entity sells both products separately and has now sold them as a “package” probably with a discount, the provided discount will be divided proportionately between the price of the product and the price of service. If the accounting entity does not offer two-year servicing as a product, though, this part of the contract needs to be valuated in expected costs, which will subsequently increase the usual profit margin of the accounting entity.
5. A part of the revenues is posted at the moment of supplying the product, and the remaining part is accrued over a period of two years from supply.

Such consideration of complex and significant transactions will help in the preparation of internal rules and they are also a source of supporting arguments for discussing such transactions with the auditor or the financial administration. On the other hand, we need to point out that not all IFRS rules can be transferred into Czech accounting, such as for example the valuation by current value or the way of reporting long-term contracts for work on the part of the supplier.  In any case, the IFRS may be a source of inspiration in the vacuum of Czech regulations not only for posting revenues.