Limited company guide
When revenue is earned rather than invoiced, how deferred and accrued income work, and what FRS 102 and IFRS 15 require of a growing UK company.
Written and reviewed by Waqas Sagar Member of ICAEW, Fellow of ACCA, Fellow of AAT, a double graduate and entrepreneur at heart, helping startups grow and serving thousands of businesses nationwide with an excellent team. Published by LimitedCompany.Accountants, 12 London Road, Morden, London SM4 5BQ. Reviewed 12 September 2026 against 2026/27 UK rates and current Companies House and HMRC guidance.
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QuickBooks PartnerCertified ProAdvisor100+ yearsCombined team experienceFully insuredUp to £2m indemnityRevenue is recognised when it is earned, not when it is invoiced and not when the money arrives. For goods, that is broadly when risks and rewards transfer. For services, it is as the service is performed.
The principle
The five-step approach
Deferred and accrued income
Agent or principal
Revenue is recognised when it is earned, not when it is invoiced and not when the money arrives. For goods, that is broadly when risks and rewards transfer. For services, it is as the service is performed.
Everything else in revenue recognition is the application of that principle to messier facts: contracts with several parts, payments up front, milestones, refunds, usage and platforms sitting in the middle.
Identify the contract; identify the distinct performance obligations within it; determine the transaction price including variable elements; allocate that price across the obligations by standalone selling price; recognise revenue as each obligation is satisfied.
This is IFRS 15's framework and FRS 102's revised direction of travel. Even where a small company applies FRS 105 or FRS 102 Section 1A, walking through those five steps produces a defensible answer and a policy you can write down.
Deferred income is money received for work not yet done: a liability. Accrued income is work done but not yet invoiced: an asset. Both sit on the balance sheet and both should be schedules you can produce on request, not plugs.
The practical test is whether you could hand an auditor or investor a list of every open contract, the amount billed, the amount recognised and the balance remaining. If not, the close is not finished.
If you control the good or service before it reaches the customer and carry the risk, you are principal and report gross. If you arrange the supply for a fee, you are agent and report the fee.
This one judgement can move reported turnover by an order of magnitude. It affects VAT, audit and company size thresholds, and every valuation multiple. Get it decided, documented and applied consistently.
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Frequently asked
Yes, directly. Corporation tax follows accounting profit, so recognising revenue too early accelerates tax you did not need to pay yet.
Most UK small companies apply FRS 105 or FRS 102 Section 1A. IFRS applies where adopted or required, often at investor request. The recognition logic is broadly similar; disclosure differs.
A change in accounting policy must be justified and is normally applied retrospectively with comparatives restated. Correcting an error is different from changing a policy, and the distinction should be documented.
Enough that a new finance hire, an auditor or an investor could apply it to your contracts and reach the same numbers you did.
Keep bank statements, sales and platform reports, purchase invoices, payroll records, VAT workings, finance agreements and Companies House correspondence. We confirm the exact list at onboarding and identify gaps before a filing deadline becomes urgent.
The fee depends on transaction volume, record quality, VAT and payroll requirements, historic catch-up and the level of reporting needed. We agree a fixed scope and price before technical work starts, with published packages available on our fees page.
Yes. We request professional clearance, collect the prior records and authorities, check the next Companies House and HMRC deadlines, and give you one clear handover list. The process is normally completed remotely.
Yes. We work through secure cloud records, scheduled reviews and digital approvals, while keeping a named team available by phone, video call and email. Clients can also visit our Morden office by appointment.
We regularly work with Xero, QuickBooks, FreeAgent, Sage and connected sales or expense apps. The right setup depends on transaction volume, integrations and the reports you need, not simply the software brand.
The relevant calendar may include annual accounts, Corporation Tax payment and return dates, confirmation statements, VAT returns, payroll submissions and Self Assessment. We map the dates from your company year end and registrations.
Included approach
Check the current rules
Deadlines, thresholds and filing rules change. GOV.UK and Companies House publish the current statutory position; advice should then be applied to your company’s circumstances.
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