How To Account For Crowdfunding Income

Posted in Business Tips, Good Advice

How to account for Crowdfunding income is reasonably straightforward.

Review what the funder signs up to when they provide funding – generally it is just an advance payment for a future sale.

This assumes the only right the provider of the funds receives is to purchase a product/service at a future date at favourable rates.

If this is the position, any income received is treated as deferred revenue and not recognised as income until the product/service is delivered

So it will be shown as a current liability in the Financial Statements.

The basis for this is that in order to recognise revenue from the sale of goods as per Section 23.10 of FRS 102, the following conditions have been met:

  1. the entity has transferred to the buyer the significant risks and rewards of ownership of the goods;
  2. the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;
  3. the amount of revenue can be measured reliably;
  4. it is probable that the economic benefits associated with the transaction will flow to the entity;
  5. the costs incurred or to be incurred in respect of the transaction can be measured reliably.

In most cases, depending on the terms of sale, conditions (1) and (2) will not be met until the product/service is provided.

It is advisable to seek professional advice.

Leave a Reply