Matching sales and COGS

In my complimentary links found under the links tab you'll find instructions about how to access the Justice Minister's website to access the Income Tax Act. If you want to read S. 18 to see what I'm muttering on about below, you'll find instructions on how to access the Income Tax Act (ITA) yourself for free on the complimentary links page.

General deductibility of expenses is covered in S. 18 of the ITA and matchability is covered in S. 18.1 of the ITA and by the way, this is the section where you find the limitations on personal services business epxenses in S. 18(1)(p).  You can't deduct an expense except where it's made for the purpose of earning revenue and the revenue is reported.  If the revenue isn't yet reported, either the revenue must be accrued, or the expense deferred.  The opposite can also be true, where revenue is reported, but expenses haven't yet been expensed, and could be accrued if known, reasonable, etc.

In the accounting world there is significant work being undertaken to determine appropriate methods under IFRS.  Both the CGA Canada Magazine and The Journal of Accountancy have recent articles about revenue recognition. I've put links to these articles and to the IFRS on my resources page for the series of workshops on working papers I'm currently presenting for IPBC.  If you want those resources, or copies of the recording of those five weeks (ends this Wednesday) go to the www.ipbc.ca partner tab and look for my name.  Instructions on accessing the correct page to purchase the product is found there.

In my workshop last week I got the feeling from the questions being asked there is significant stress around the recognition of revenue, in understanding how to either accrue or defer, both on the revenue and on the expense side of the equation.