Estate agency accounting in South Africa with particular reference to the recognition of income

Abstract

Almost all estate agencies that are involved in residential property sales recognise the commission income from a sale when the commission concerned is actually received. This practice is at variance with generally accepted accounting practice, which requires recognition of income to occur on the signing of the agreement or when the sales contract becomes firm (i.e. unconditional). The South African Revenue Services (SARS) has required the few estate agencies that apply generally accepted accounting practice in their financial statements to align their income tax accounting with their financial accounting. This alignment results in tax being paid on the commission that is due from the sale of properties that have not yet been transferred. This paper debates the issue of the recognition of income. It provides suggestions for the improvement of disclosure in estate agencies’ financial statements. Furthermore, it suggests changes to estate agencies’ standard sales contracts to the effect that income is deemed to have been earned upon the registration of the transfer of a property.

Citation

Otter, J.W. and van Wyk, A.J.J. (2002), "Estate agency accounting in South Africa with particular reference to the recognition of income", Meditari Accountancy Research, Vol. 10 No. 1, pp. 147-158. https://doi.org/10.1108/10222529200200008