Question

Discuss about the realisation concept or revenue recognition concept of accounting.

Answer 1

The concept of revenue recognition requires that the revenue for a business transaction should be included in the accounting records only when it is realized. Revenue is the cash inflow for a business arising from the sale of goods or services. So, we assume this revenue is realized only when it legally arises to be received.
So in simpler terms, the profit shall be recorded when it is actually earned. There are some exceptions to this general rule of revenue recognition. In the case of long-term contracts proportionate amount of revenue, based on the part of the contract completed by the end of the period is treated as realized. Similarly, when goods are sold on hire purchase, the amount collected in installments is treated as realized.