Income, accounting and Revolut
It’s been a while since my last post, apologies. This posts recounts a recent experience I had with the digital bank Revolut, and is a good example of the need to know some basic accounting concepts.
Let’s start with a definition of income from the IASB’s conceptual framework – “income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants”. For the purposes of this post, assume I am the accounting entity.
I should say I am a fan of the digital bank Revolut (although it’s not my main bank). They are among the fintechs changing banking. At the same time, I’m cautious – I am an accountant, and from the below, you’ll see I will remain cautious
Without getting into too much personal detail, I get paid in GBP but live in Ireland so spend in EUR. I recently got a message from Revolut asking me to verify my income of €116,000. I think that cannot be right, I don’t earn that much net of taxes – I might like too :). They provided no breakdown of this amount or any ability to easily analyse it. I downloaded my statements from Revolut into Excel and did my own sums. While I could not get their exact figure, I could get close. The explanation was that transfers from my GBP to EUR account (within Revolut) were counted as income when I transfered to EUR. This is double counting, as both cannot be income. If I relate to the definition of income above, when I get paid in GBP, I get an increase in my economic benefits ( I have more cash). When I transfer this same money from GBP to EUR, it is the same money, there is no increase in the economic benefits I have – unless due to currency fluctuations, but let’s keep it simple.
Quite a fundamental and basic error occurred in the above scenario. It is yet another example of how basic accounting concepts need to be clearly understood and applied.