FRS 102 Revenue Recognition in 2026: A Contract Review Guide for UK SMEs
An invoice is not the same as earned revenue. The revised FRS 102 revenue model makes a disciplined contract review especially important for service businesses and suppliers with bundled promises.
Who needs to review their accounting policy?
The FRC’s Periodic Review 2024 amendments generally apply to accounting periods beginning on or after 1 January 2026. That is a period-start test, not a year-end test. A calendar-year company and a company with a 31 March year end may therefore have different first affected periods. Confirm your reporting framework and transition date with your accountant before changing entries.
Revised Section 23 introduces a revenue model aligned proportionately with IFRS 15. FRS 102 is not identical to IFRS 15, and not every UK small company reports under FRS 102. This guide is a contract-review workflow, not a substitute for applying the standard.
Review the promises, not just the invoice schedule
For each material contract, identify the customer arrangement, the goods or services promised, the transaction price, how that price is allocated and when the relevant promises are satisfied. Separate commercial billing terms from the accounting judgement about delivery.
Flag bundled implementation and support, discounts, refunds, variable fees and change requests. A milestone invoice may be useful evidence, but it does not automatically establish when revenue should be recognised. Record the reasoning and the source contract so a reviewer can follow the decision.
Worked example: implementation and support
Suppose a customer pays £24,000 for an arrangement containing implementation and twelve months of support. Assume, purely for illustration, that these are separate performance obligations and that appropriate stand-alone selling prices support allocating £6,000 to implementation and £18,000 to support.
If implementation is satisfied at a point in time and support is delivered evenly over twelve months, the example recognises £6,000 when implementation is satisfied and £1,500 per month for support. Receiving all the cash upfront does not make £24,000 immediate revenue. The actual contract may lead to a different conclusion, including recognition over time for implementation.
Build a contract-to-ledger control
Maintain a schedule with contract value, relevant promises, delivery evidence, recognised revenue, invoices and cash receipts. Reconcile the schedule to revenue and the appropriate contract asset, receivable or liability balances. Ask a named reviewer to approve changes to assumptions.
Distinguish a receivable, where the right to consideration is unconditional apart from the passage of time, from a contract asset that depends on further conditions. Do not simply label every uninvoiced amount a debtor. Review contract modifications and estimates before publishing management accounts.
Explain the transition in management reporting
Discuss the permitted transition approach with your accountant; opening balances, comparatives and disclosures depend on the choices and requirements that apply. Keep an explanation of changes caused by accounting policy separate from changes caused by trading.
A revenue-timing change may move reported profit without changing customer cash receipts. Use consistent definitions when comparing periods, explaining performance to directors or assessing lender measures. Reconcile the revenue schedule first, then use the resulting figures in reporting and forecasts.
Sources and further guidance
General guidance, not accounting, legal or tax advice. Confirm the treatment for your circumstances with a qualified adviser.
Frequently asked questions
Does a deposit count as revenue?
Not automatically. Recognition depends on satisfying the relevant promise under the applicable accounting policy, not just receiving cash.
Does every SME use FRS 102?
No. Confirm the framework used by your company, including whether FRS 105 or another framework applies.