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How is the moment of income recognition regulated for an entrepreneur using the cash method?
How is the moment of income recognition regulated for an entrepreneur using the cash method?
I am an individual entrepreneur and operate under the cash method. In December 2024, I received an advance payment for a service. The service was rendered in 2025. In this case, which date is considered the moment of income recognition?
According to the State Tax Service under the Ministry of Economy, all expenses related to the receipt of income, except for those that are not deductible, as well as mandatory payments provided by law, are deductible from income.
At the same time, the taxpayer is obliged to maintain accurate and timely records of income and expenses based on documented information to accurately reflect taxable income (profit), and to attribute income and expenses to the respective reporting periods depending on the accounting method applied in accordance with the relevant chapter.
Micro-entrepreneurs may, at their discretion, maintain accounting records using either the cash method or the accrual method. Small, medium, and large business entities must use the accrual method.
It has been stated that when using the cash method, the moment of income recognition is the date when the taxpayer receives cash, or in the case of non-cash payments, the date when the funds are credited to the taxpayer's bank account, an account under their control, or an account to which they have the right to receive the funds. Additionally, if a financial obligation of the taxpayer is settled or terminated (e.g., through mutual settlements or similar cases), the date of such settlement or termination is also considered the date of income recognition.
For tax accounting purposes, when a taxpayer uses the cash method, the date of expense recognition — unless otherwise specified in this article — is the actual date the expense is incurred. If a financial obligation to the taxpayer is settled or terminated (e.g., through mutual settlements or similar cases), the date of such settlement or termination is considered the date the expense is incurred.
I am an individual entrepreneur and operate under the cash method. In December 2024, I received an advance payment for a service. The service was rendered in 2025. In this case, which date is considered the moment of income recognition?
According to the State Tax Service under the Ministry of Economy, all expenses related to the receipt of income, except for those that are not deductible, as well as mandatory payments provided by law, are deductible from income.
At the same time, the taxpayer is obliged to maintain accurate and timely records of income and expenses based on documented information to accurately reflect taxable income (profit), and to attribute income and expenses to the respective reporting periods depending on the accounting method applied in accordance with the relevant chapter.
Micro-entrepreneurs may, at their discretion, maintain accounting records using either the cash method or the accrual method. Small, medium, and large business entities must use the accrual method.
It has been stated that when using the cash method, the moment of income recognition is the date when the taxpayer receives cash, or in the case of non-cash payments, the date when the funds are credited to the taxpayer's bank account, an account under their control, or an account to which they have the right to receive the funds. Additionally, if a financial obligation of the taxpayer is settled or terminated (e.g., through mutual settlements or similar cases), the date of such settlement or termination is also considered the date of income recognition.
For tax accounting purposes, when a taxpayer uses the cash method, the date of expense recognition — unless otherwise specified in this article — is the actual date the expense is incurred. If a financial obligation to the taxpayer is settled or terminated (e.g., through mutual settlements or similar cases), the date of such settlement or termination is considered the date the expense is incurred.