The realisation concept determines when goods sent on credit to customers are to be included in the sales figure, for the purpose of computing the profit or loss for the accounting period. Which of the following tends to be used in practice to determine when to include a transaction in the sales figure for the period? When the goods have been
(a) despatched (b) invoiced
(c) delivered (d) paid for
Give reasons for your answer.
The realisation concept determines when goods sent on credit to customers are to be included in the sales figure, for the purpose of computing the profit or loss for the accounting period. Which of the following tends to be used in practice to determine when to include a transaction in the sales figure for the period? When the goods have been
(a) despatched (b) invoiced
(c) delivered (d) paid for
Give reasons for your answer.
(b) The answer to this question would be when the goods have been invoiced. The reason for this is that the revenue is assumed to be when a legal right to receive it arises i.e., the point of time when goods have been sold or service has been rendered.
Thus, credit sales are treated as revenue on the day sales are invoiced and not when money is received from buyers or when they are dispatched or delivered.
(b) The answer to this question would be when the goods have been invoiced. The reason for this is that the revenue is assumed to be when a legal right to receive it arises i.e., the point of time when goods have been sold or service has been rendered.
Thus, credit sales are treated as revenue on the day sales are invoiced and not when money is received from buyers or when they are dispatched or delivered.
