Question

The realization 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 trends 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) Dispatched
(b) Invoiced
(c) Delivered
(d) Paid for
Give reason for your answer.

Answer 1

The answer to this question would be when the goods have been invoiced.

Reason - The revenue is assumed to be realised 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 made (invoiced) and not when money is received from buyers.