When should revenue from impact or developer fees be recognized?

Revenue from impact or developer fees should be recognized when an enforceable legal claim is established because this marks a point in time when the entity has a right to demand payment, ensuring that the revenue can be legally enforced. This aligns with the revenue recognition principle, which states that revenue should only be recognized when it is realizable and earned.

When a legal claim exists, it indicates that the conditions have been met for the recognition of the revenue as the fees are linked to a specific transaction, such as the processing of permits or the construction of infrastructure that developers are required to pay for.

While recognizing revenue upon collection or when spent for their intended purpose may seem reasonable at first glance, these approaches do not align strictly with the revenue recognition standards. Collecting the fee does not confirm that the revenue was earned in the context of the transaction, and spending does not guarantee that the related inflow of resources has occurred. Therefore, the establishment of an enforceable legal claim is the correct point for recognizing revenue from impact or developer fees.