ICAI Guidance Note on Accounting by E-commerce Entities

ICAI Guidance Note on Accounting by E-commerce Entities.

In view of increased number of online transactions for buying and selling of products / services, ICAI has revised its ‘Guidance Note on Dot-Com companies’ as the ‘Guidance Note on Accounting by E-commerce Entities’.

This revised Guidance note deals with key issues of e-commerce entities and accounting issues relating to revenue and expense recognition in the financial statements.

The main sources of income of of e-commerce companies normally include revenue from merchandising activities, membership & subscription, Advertising services; and other services like web-hosting, content selling, etc..

In most cases, the delivery of goods in such sales is the responsibility of the e-commerce entity and therefore it is important to determine when does the ‘risk and rewards’ of ownership is transferred.

Recognition of membership and subscription may depended on whether it is refundable or non-refundable.

One important issues in accounting by e-commerce companies is as to whether to recognise gross amount of revenues and the related cost of sales or to recognise the revenue on net basis, similar to commission. This is important due to the fact the those entities are often valued based on the revenue generated by the portal.

Another important aspect dealt with by the Guidance note is recognition of revenue where customers have a right to return as per terms of purchase. In such cases, the entity would require to appropriate timing of recognising revenue in view of the uncertainty attached. 

Download Guidance Note on Accounting by E-commerce Entities Click Here >>

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