Why Companies Need to Calculate Future Income

[Joywtome231]

Working with DBP in the framework of accounting is not just a formal procedure, but an important element of financial management that ensures the accuracy of reporting and helps to comply with terms and regulations. Let's say a company leases out premises and receives payment from the tenant for 2 years in advance.

And here the question arises: to record all receipts as income of the given period or to distribute it over 2 years? The second option is correct. But why complicate the situation, to do additional actions, to enter more data and information into the reporting, if it is possible to count all receipts in the balance sheet as income for the current period?

Corporate messenger on your server in 10 minutes
We will provide a free period. We will help to set up Compass on your servers panama phone number list or in the cloud. We will simplify the move and adaptation of the team.
Order a consultation
First, the allocation of future income is a requirement for accounting. The accrual principle on which accounting is based states:

Income must be reflected in the period in which it is actually received.
This means that the company is obliged to separate funds received in advance and actual income received for the current period (year, month).

Secondly, in this way you reduce the taxable base of the current period. If you enter all the income in the report as for the current period, the amount will be 2 times more. The company will have to pay more taxes, which can affect profit and financial stability. It will be more profitable for the business to distribute the income evenly. And thus legally reduce the taxable base in this period.