réttarávöxtun

Réttarávöxtun is an Icelandic legal term that translates to "correct accrual" or "proper realization." It refers to the accounting and legal principle that dictates when income or expenses should be recognized in financial statements and for tax purposes. This principle is crucial for ensuring that financial reporting accurately reflects the economic reality of a business's operations over a specific period.

The core idea behind réttarávöxtun is to match revenues with the expenses incurred to generate them, regardless of when the cash is actually received or paid. This is often achieved through accrual accounting methods. For example, if a company provides a service in December but doesn't receive payment until January, réttarávöxtun dictates that the revenue should be recognized in December, as that is when the economic benefit was earned. Similarly, if a company incurs an expense in one period that will benefit future periods, it may be capitalized and expensed over time rather than being fully recognized in the period it was incurred.

In Iceland, réttarávöxtun is fundamental to tax law, influencing how taxable income is calculated. Tax authorities expect businesses to follow these principles to prevent artificial manipulation of profits. The application of réttarávöxtun can be complex and often involves specific accounting standards and tax regulations. Professional advice is typically sought to ensure compliance, particularly in cases involving long-term contracts, depreciation, or provisions.