As advisors in Accounting and Tax Compliance in Chile and thanks to our collaborator Germán R. Pinto Perry we show you the main differences between Perceived Income and Accrued Income.
All the taxpayers of the First Category Income Tax that demonstrate their effective income through complete accounting, have to consider within their tax result or Liquid Taxable Income (RLI), the gross income that they generate according to their activity affected to this taxation, whether “earned” or “received”.
The Income Tax Law defines the concept of “accrued income” as that over which the taxpayer has the right to claim it, and “received income” as that which has materially entered the taxpayer’s patrimony.
Obviously, it is impossible for something to enter the patrimony if there is no title or right to demand it, therefore, an income cannot be received if it has not been accrued before. However, the Internal Revenue Service has another interpretation which considers as gross income, and therefore forming part of the RLI, that income received but not yet accrued, such as subscriptions to a newspaper or the payment of tuition and fees that a school charges to its parents the year before the year in which the classes are held.
This has the complexity of generating a difference between the accounting and tax treatment of a taxpayer’s income, since an advance payment from a customer may be taxable income, but in accounting terms it is considered as a liability. Thus, it is necessary to adjust this difference to reflect it in the income tax return as a taxable income, unless the accounting result says otherwise.