Accounting principles and Policies

5. Realization Concept or Revenue Recognition Concept:
This concept deals with the problem, when the revenue should be recognized?” According to this concept, the sale should be recognised at the point, when the property in goods passes to the buyer and he becomes legally liable to pay and other income is recognised, when they accrue.

Mr. A place an order with Mr. B for supply of certain goods, which are yet to be manufactured. On receipt of order, Mr. B purchases raw materials employs workers, produces the goods and delivers finished goods to A Mr. A makes payment on receipt of goods. In this case, the sale will be presumed to have been made not at the time of receipt of the order for the goods, but at the time, when goods are delivered to Mr. A.

When cash is received (Cash Sale).
When the customer has become legally liable to pay the price (Credit Sale).
When specific service is performed (Service contract).

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