AS 9 revenue recognition is a rule drawn by ICAI. The rule helps businesses figure out when to book revenue. The solution to this issue is clear — AS 9 speaks of when an enterprise is required to reflect its income. A business, if it sells things or provides services, can’t recognize revenue as soon as it signs a deal. It needs to be deferred till the money is realized as per AS 9. This helps users of financial statements have an unobstructed view of the income of a business. All companies that follow the Indian GAAP prepare accounts under Indian AS 9. It is applicable for firms that are not applying Ind AS. The rules of AS 9 Revenue Recognition give unambiguous guidelines. It clarifies when to report income from goods, services and other business labour. If firms adhere to AS 9, their accounts would be fairer, timely, and true.
What is AS 9?
AS 9 Revenue Recognition is an accounting standard that is issued by the Indian Accounting Standards to dictate when a business should recognize income. It applies to the sale of goods, services, or other business income, such as interest or dividends. The primary objective is to account for revenue only when it is earned and realizable. This standard enables companies to show income in their books in the right way and ensures that financial statements stay fair and true. AS 9 explains when and how to account for the following incomes:
- Sale of goods
- Rendering of services
- Utilisation of the company’s resources by third parties (interest, royalties, dividends)
Meaning of Revenue in AS 9
Revenue is the money you make by doing the thing the business is for. This does not include money from loans or investments (“business”) unless they count as a business. AS 9 defines revenue as the gross inflow of cash or receivables arising from:
- Sales of goods
- Giving services
- Application for assets that generate interest, royalty or dividend
Scope of AS 9
AS 9 revenue recognition is applied to:
- All companies other than those referred to in Ind AS.
- Income from the sale of goods
- Income from services
- Interest, Dividend and Royalty
AS 9 does not cover:
- Contracts In Construction (Refer As 7 revenue recognition)
- Rental revenue (discussed in AS 19)
- Insurance (covered by IRDA)
- Grants from governments (refer to AS 12)
AS 9: The Criteria for Recognition of Revenue
AS 9 revenue recognition guidelines may assist companies in arriving at the right time to recognize income. Those rules ensure that income gets into the books when the work is performed, the amount is fixed, and the money can be predicted with reasonable certainty. It prevents the recording of premature or false revenues and maintains a set of accounts that are neither clouded nor misleading. There are rules you must follow to show revenue in books. These are known as revenue recognition criteria under AS 9.
Criteria for Recognition of Revenue
AS 9 lays down rigorous criteria that need to be satisfied if an entity wants to recognize revenue. These terms vary depending on the type of transaction — sale of goods, services or other income. These satisfy the requirement that income is reported accurately and timely manner. AS 9 permits recognition of revenue only when all of the following conditions are satisfied:
For Sale of Goods:
- The transfer of ownership of goods by the company
- All risks and rewards pass to the buyer
- The seller has no control whatsoever
- The revenue amount is known
- Money is likely to come
For Rendering of Services:
- Job done (or a large chunk of it anyway)
- The amount of revenue is known
- Costs can be measured
- Money is expected
For Interest, Royalties, Dividends:
| Type of Income | When to Record |
| Interest | On time basis |
| Royalties | As per agreement terms |
| Dividends | When right to receive is made |
Key Points:
- No premature income reporting
- Then use fair and measurable income only.
- Make sure you always ask if payment is imminent
These AS 9 conditions of revenue recognition aid the companies in demonstrating the real income. It also prevents fake or premature reporting of income.
AS 9 Revenue Recognition Examples
AS 9 revenue recognition examples assist in applying theory in practical situations. You can also refer to AS 9 revenue recognition for more practical examples. Let’s understand more about AS 9 revenue recognition examples.
Sale of Goods Example
ABC Ltd. sells 500 mobile phones to XYZ Traders with a delivery date of 10th March. Title is transferred, and delivery is effected.
- Income recognized on 10th March.
Services Example
A marketing agency is engaged for a month, whose value is ₹50,000. They reach 75 per cent by the end of the month.
- You book the income of ₹37,500 for that month.
Interest Example
The company receives interest on the FD every month.
- Income is received every month as bank interest.
These basic revenue recognition examples from AS 9 will help in understanding how the theory is applied in actual practice.
AS 9 vs AS 7 Revenue Recognition
Revenue recognition is a key principle in accounting that determines when and how income is recorded. In India, AS 9 and AS 7 are two important accounting standards that guide this process for different types of transactions.
Difference between AS 9 and AS 7
- AS 9 applies to general revenue from sales, services, and other income sources like interest or royalties.
- AS 7 is specific to construction contracts, recognizing revenue based on the percentage of project completion.
| Feature | AS 9 Revenue Recognition | AS 7 Revenue Recognition |
| Focus | Normal sales/services income | Construction contract income |
| Business type | All businesses | Builders, contractors |
| Timing | Based on transfer of risk | Based on stage of completion |
| Applies to | Sale of goods and services | Long-term projects |
| Format | Fixed rules | Percentage of completion method |
Key Points:
- If business is of goods/services — apply revenue recognition principles of AS 9.
- If the business is construction, go for AS 7 revenue recognition.
This distinction is critical when it comes to exams and interviews.
AS 9 Revenue Recognition ICAI Rules
The official rules are all in the AS 9 revenue recognition ICAI guide. AS-9 for authentic financial reporting was prescribed by the ICAI (Institute of Chartered Accountants of India). ICAI amends its guidance notes. Students are advised to refer to the latest module and practice manual and are also expected to prepare for new topics.
Key ICAI Guidelines:
- Show revenue only when earned
- Use the matching concept
- Be prudent: don’t exaggerate income
- If questionable revenue don’t included in the collection
ICAI Resources:
You can look at the ICAI material here:
- Study module
- Revision test papers (RTP)
- Mock test papers (MTP)
- BOS knowledge portal
Relevance to ACCA Syllabus
For ACCA in particular, Financial Reporting (FR) and Strategic Business Reporting (SBR), knowing ASP 9 in revenue recognition will demonstrate the basic learning of IFRS 15. Students should understand that it is important to recognize revenue in an appropriate manner to ensure fair financial disclosures.
AS 9 Revenue Recognition ACCA Questions
Q1: Pursuant to AS 9, the sales value of goods is recognized when:
A. Invoice is created
B. Payment is received
C: Transfer of risks and rewards of ownership
D. Goods are produced
Answer: C
Q2: Which of these incomes is not recognised under AS 9?
A. Royalty
B. Dividend
C. Revenue from construction contracts
D. Sale of Services
Answer: C
Q3: Income relating to services under AS 9 is accounted for on the following basis:
A. Cash basis
B. Completion level
C. Time of agreement signing
D. Receipt of full payment
Answer: B
Q4: What is the rule of recognition of revenue in AS 9?
A. Matching Principle
B. Prudence Principle
C. Consistency Principle
D. Materiality Principle
Answer: A
Q5: Interest Income under AS 9 should be recognised:
A. On cash collection
B. Over time on an accrual basis
C Commencing agreement
D. Only at maturity
Answer: B
Relevance to US CMA Syllabus
In US CMA (particularly in Part 1: Financial Reporting), it is very important for you to know when to recognize revenue so that the income and profitability is reported correctly. AS 9 fundamentals are closely linked with the more comprehensive ASC 606 concepts covered by CMA candidates.
AS 9 Revenue Recognition US CMA Questions
Q1: According to AS 9, revenue shall be recognized when:
A. The contract is signed
B. Money is guaranteed
C. Risks and rewards have been transferred
D. Invoice is raised
Answer: C
Q2: Recognition of service revenue in AS 9 is based on: a.
A. Agreement stage
B. Client’s satisfaction
C. Stage of completion
D. Total payment received
Answer: C
Q3: Which of the following is not covered under AS 9 Revenue Recognition?
A. Sales of finished goods
B. Revenue from services
C. Interest earned
D. Revenues from construction activities over the long term
Answer: D
Q4: Dividends are recognized in AS 9 when:
A. Company announces
B. Dividend becomes due and payable
C. Dividend is received
D. Dividend is declared by the Board
Answer: B
Q5: Revenue under AS 9 is measured at:
A. Market value
B. Cash flow received
C. Fair value of the consideration received/receivable.
D. Historical cost
Answer: C
Relevance to US CPA Syllabus
The concept of recognizing revenue is very important in the US CPA exam especially as it relates to FAR (Financial Accounting and Reporting). The approach used by AS 9 is the foundation that ties into ASC 606 guidance on contracts and revenue.
AS 9 Revenue Recognition US CPA Questions
Q1: What circumstances must exist for revenue to be recognized in the sale of goods according to AS 9?
A. Customer order
B. Risk and reward transfer
C. Production completion
D. Cash payment
Answer: B
Q2: Income from service contracts under AS 9 can be recognized while:
A. Signed Mortgage Service Agreement
B. Some labour performed and measured.
C. Prepayment is taken
D. Service is fully completed
Answer: B
Q3: Revenue is also recorded when no cash has been received yet in such situations as:
A. Revenue is uncertain
B. Future cash flows are reasonably certain
C. Credit is covered by a contract for deferred payment
D. Seller has control
Answer: B
Q4: What income is recorded over time in AS 9?
A. Dividends
B. Sale of goods
C. Royalties
D. Interest
Answer: D
Q5: When is royalty income recognized under AS 9?
A. At the end of the agreement
B. Accorded terms over time
C. When royalty is proposed
D. After full collection
Answer: B
Relevance to CFA Syllabus
In the CFA program (Particularly CFA Level I and II ), standards of revenue recognition, e.g. AS 9, correlate with the quality of financial reporting. Knowing when and how revenue is recognized is one of the critical things to understanding a company’s financials.
AS 9 Revenue Recognition CFA Questions
Q1: Sales (income from sale of goods) as per AS 9 is accounted for as:
A. Customer places an order
B. Goods are ready
C. Risk and reward are transferred
D. Goods are advertised
Answer: C
Q2: Sales from services are accounted for in AS 9 by:
A. Percentage of completion method
B. Cash basis accounting
C. Deferred recognition
D. Recognition when a project is finished only
Answer: A
Q3: What type of revenue is not within the scope of AS 9?
A. Sale of books
B. Royalties
C. Long-range building projects
D. Professional services
Answer: C
Q4: Revenue should be recorded when:
A. When performance obligations are satisfied
B. Contracting Negotiations
C. Invoice is shared
D. Taxes Deposits
Answer: A
Q5: Interest income under AS 9 is recorded as under:
A. At the inception of the loan
B. As earned on a time basis
C. After total repayment
D. On Collection of Principal
Answer: B
