When the invoice is issued, revenue is recorded net, VAT goes to its own account (output VAT), and the client (or cash) is debited with the gross amount.
The company issued a consulting-services invoice to a client on credit: net 50,000 + 14% VAT = 7,000, total 57,000.
| Account | Debit | Credit |
|---|---|---|
| Trade Receivables (gross) | 57,000 | |
| Service Revenue (net) | 50,000 | |
| VAT — Output | 7,000 | |
| Total | 57,000 | 57,000 |
(A cash sale: same entry with Cash/Bank replacing Trade Receivables)
A registrant is obliged to document every supply with an electronic invoice (or electronic receipt for consumer transactions), and the 7,000 goes into output VAT on the return of the month it became due. Careful: a missing invoice never takes the revenue out of the tax net — the Authority assesses undocumented revenue and adds non-invoicing penalties on top.
Companies and obligated bodies withhold a percentage of the net before VAT from their payments to us and remit it to the Tax Authority in our name — the "withholding on account of tax" system (Art. 59), known in practice as withholding at source. The withheld amount is not an expense — it is an asset (a prepayment of our own income tax), and the client's account is closed with the gross: cash + the withheld tax.
We collected the previous service invoice (gross 57,000, net 50,000). The client withheld 3% of the net = 1,500 and transferred the remaining 55,500 to our bank.
| Account | Debit | Credit |
|---|---|---|
| Bank | 55,500 | |
| Withholding Tax — Our Credit (asset) | 1,500 | |
| Trade Receivables | 57,000 | |
| Total | 57,000 | 57,000 |
The withholding is computed on the net before VAT, not the gross. Keep the withholding certificates from clients — this asset's balance offsets your income tax in the annual return.
A customer advance is a liability, not revenue — we owe the customer a service or goods not yet delivered. Revenue is recognized when the performance obligation is satisfied (the service performed or goods delivered) — usually documented by the invoice issued at that point, against which the advance is applied.
We received an advance of 30,000 in the bank. Later we issued the invoice: net 50,000 + VAT 7,000 = 57,000; the advance was applied and the balance stayed on the client's account.
| Account | Debit | Credit |
|---|---|---|
| Bank | 30,000 | |
| Advances from Customers (liability) | 30,000 |
| Account | Debit | Credit |
|---|---|---|
| Advances from Customers | 30,000 | |
| Trade Receivables (balance) | 27,000 | |
| Service Revenue | 50,000 | |
| VAT — Output | 7,000 | |
| Total | 57,000 | 57,000 |
Booking the advance as revenue on receipt is a double error: it inflates current-period revenue and hides a real liability. And for tax: VAT falls due at the earliest event (invoice, performance/delivery, or collection) — so VAT may be due on the advance itself; check the timing of the tax document with your advisor.
Amounts collected for a service delivered over time (maintenance, subscriptions, rent received in advance) are first recorded as deferred revenue (a liability), then transferred to revenue in proportion to the service performed each period.
An annual maintenance contract of 120,000 fully collected on January 1 (VAT omitted for clarity — handled with the invoice as in Topic 1.1). Earned monthly: 10,000.
| Account | Debit | Credit |
|---|---|---|
| Bank | 120,000 | |
| Deferred Revenue (liability) | 120,000 |
| Account | Debit | Credit |
|---|---|---|
| Deferred Revenue | 10,000 | |
| Service Revenue | 10,000 |
Revenue belongs to the period in which the service was performed, even if the invoice comes later — record it as accrued revenue (an asset) at period end, closed when the invoice is issued.
In December the company performed services worth 20,000; the invoice is issued in January (with VAT of 2,800).
| Account | Debit | Credit |
|---|---|---|
| Accrued Revenue (asset) | 20,000 | |
| Service Revenue | 20,000 |
| Account | Debit | Credit |
|---|---|---|
| Trade Receivables | 22,800 | |
| Accrued Revenue | 20,000 | |
| VAT — Output | 2,800 | |
| Total | 22,800 | 22,800 |
Delaying the invoice does not delay the VAT due date — VAT falls due at the earliest event (here, performing the service in December). The proper course is to issue the tax document and include the VAT in the return of the month of performance; otherwise the company faces assessments and late penalties.
A trade discount off the price list is never recorded — the invoice is issued at the net price. A settlement discount allowed (for early payment) appears at collection: we receive less than the client's balance and the difference reduces our revenue. (Our example assumes the discount was not expected when invoicing; a discount expected to be granted reduces revenue from the start, at recognition.)
A client balance of 57,000 with a 1,000 discount for payment within 10 days — the client paid early and we collected 56,000.
| Account | Debit | Credit |
|---|---|---|
| Bank | 56,000 | |
| Discount Allowed (revenue reduction) | 1,000 | |
| Trade Receivables | 57,000 | |
| Total | 57,000 | 57,000 |
Under modern standards an expected discount is variable consideration that reduces revenue (not a finance expense) — presented within net sales. For tax: in our example no credit note was issued, so the VAT stays unchanged and the whole 1,000 hits revenue; if an electronic credit note is issued, the amount is split — the net portion reduces revenue and the VAT portion (14/114 of the discount) reduces output VAT — provided the discount qualifies as a deduction from the taxable base (normal commercial practice, documented) and a registered customer correspondingly reduces the input VAT they deducted.
Income arising outside the main activity (renting spare space, selling scrap and waste, capital gains) is recorded within Other Income — never mixed with operating revenue.
The company rented out spare space for a monthly 15,000 collected by bank:
| Account | Debit | Credit |
|---|---|---|
| Bank | 15,000 | |
| Rental Income (other income) | 15,000 |
Waste and scrap were sold for cash at 4,000:
| Account | Debit | Credit |
|---|---|---|
| Cash | 4,000 | |
| Other Income (scrap sale) | 4,000 |
A registrant's scrap sale is a VAT-taxable supply requiring an electronic invoice, and the tenant may withhold tax at source from the rent — both omitted in the examples for simplicity.
Credit interest on current accounts and deposits is recorded as finance income when credited (or accrued) — it carries no VAT (CBE-supervised banking services are exempt, and receiving interest is not a supply we make in the first place).
The bank credited deposit interest of 3,500:
| Account | Debit | Credit |
|---|---|---|
| Bank | 3,500 | |
| Finance Income (credit interest) | 3,500 |
Check the bank advice: interest is sometimes credited net of a tax withheld on returns — then record the interest gross and the withheld tax in an asset account (like Withholding Tax — Our Credit) to be handled in the tax return according to the nature of the base.
For contracts performed over time (construction), revenue is recognized by the stage of completion of the work — not by billings and not by collections. The most common measure is cost-to-cost: POC = actual costs to date ÷ total estimated contract costs.
A contract priced at 1,000,000 with total estimated costs of 800,000. Year 1: actual costs 400,000, progress billings issued to the client 450,000.
| Percentage of completion (400,000 ÷ 800,000) | 50% |
| Year's revenue (1,000,000 × 50%) | 500,000 |
| Year's recognized cost | 400,000 |
| Year's contract gross profit | 100,000 |
| Account | Debit | Credit |
|---|---|---|
| Contract Costs (contract work in progress) | 400,000 | |
| Cash / Suppliers / Wages | 400,000 |
| Account | Debit | Credit |
|---|---|---|
| Trade Receivables (billings) | 450,000 | |
| Progress Billings (contra to the contract) | 450,000 |
| Account | Debit | Credit |
|---|---|---|
| Recognized Contract Costs (income statement) | 400,000 | |
| Contract Work in Progress (recognized profit) | 100,000 | |
| Contract Revenue (income statement) | 500,000 | |
| Total | 500,000 | 500,000 |
| Contract WIP at cost + recognized profit (400,000 + 100,000) | 500,000 |
| Less: progress billings issued | (450,000) |
| Contract asset — work performed not yet billed | 50,000 |
(If billings exceeded the work performed, the difference would be a contract liability — over-billing)
If the whole contract turns out to be loss-making, the expected loss is recognized immediately in full — never spread over the remaining years of execution. (The mechanism under current standards: the loss on work performed flows through the POC results + an onerous-contract provision for the remaining unavoidable loss — Egyptian Standard 28 / IAS 37.)
A progress billing is only a claim-and-collection document — revenue follows the work performed (POC). A contract 50% complete with 45% billed has revenue of 50%, not 45% (the difference is a contract asset — work performed not yet billed); and if billings exceed the work performed (55% billed, 50% complete) revenue is still 50% and the excess is a contract liability — revenue always follows the stage of completion, never the billings.
No revenue exists before the obligation is performed (goods delivered or service rendered). These events get no revenue entry:
1) Signing a contract with a client: a mere agreement — no entry until performance begins.
2) Receiving a customer purchase order: a future claim — no entry.
3) Sending a quotation or winning a tender: no entry.
4) Receiving an advance: an entry exists — but as a liability, not revenue (Topic 3).
5) Goods delivered to a commission agent, not yet sold: no revenue until the agent sells them to a third party.
Always ask: has control of the goods passed, or has the service been performed? Paperwork (contracts, orders, quotes) does not create revenue — performance does.