Introduction To Accounting: Part 18: Revenue Recognition Concept Or Realisation Concept

Nishant Kumar

28/06/2017 0 0

According to the Revenue Recognition Concept, revenue is considered to have been realised when a transaction has been entered into and the obligation to receive the amount has been established.
It is to be noted that recognising revenue and receipt of an amount are two separate aspects.
Examples:

An enterprise sells goods in December, 2017 and receives the amount in April, 2018. Revenue of this sales should be recognised in December, 2017, i.e. when the goods are sold. It is so because the legal obligation has been established (upon sales) in December, 2017.
Suppose, an enterprise has received an advance in December, 2017 for sales to be made in April, 2018. In this case, revenue shall be recognised in April, 2018, when the sale will take place because the legal obligation to receive the amount would be established in April, 2018.

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Introduction To Accounting: Part 18: Revenue Recognition Concept Or Realisation Concept

According to the Revenue Recognition Concept, revenue is considered to have been realised when a transaction has been entered into and the obligation to receive the amount has been established.

It is to be noted that recognising revenue and receipt of an amount are two separate aspects.

Examples:

An enterprise sells goods in December, 2017 and receives the amount in April, 2018. Revenue of this sales should be recognised in December, 2017, i.e. when the goods are sold. It is so because the legal obligation has been established (upon sales) in December, 2017.

Suppose, an enterprise has received an advance in December, 2017 for sales to be made in April, 2018. In this case, revenue shall be recognised in April, 2018, when the sale will take place because the legal obligation to receive the amount would be established in April, 2018.

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