REALISATION CONCEPT OF ACCOUNTING

ALL ABOUT ACCOUNTING :- 24th BLOG

             ☆☆☆ACCOUNTING☆☆☆

Hi freinds., 🙏

Today's discuss 7th concept of accounting....

                                             So let's discuss ..... 

 ★ REALISATION CONCEPT OF ACCOUNTING :-

This concept states that revenue from any business transaction should be included in the accounting records only when it is realised. The term realisation means creation of legal right to receive money 💰. Selling goods is realisation, receiving order is not 🙅.

        In other words, it can be said that :

★[Revenue is said to have been realised when cash has been received or right 👍 to receive cash on the sale of goods or services or both has been created.]★

For eg :-

(1). ABC TEXTILES received 📥 an order to supply some meter raw clothing 👔👕👖 worth ₹ 2,00,000 they supplied raw cloths worth ₹ 1,00,000 up to the Financial year ending 31st march 2020 and rest of the cloths were supplied in appril 2020.

Now let us analyse the above examples to ascertain the correct ⭕ of revenue realised for the year ending 31st march 2020.

(1) ABC TEXTILE'S revenue for the financial year 2019-020 is ₹ 1,00,000. Mere getting an order is not considered as revenue until the goods have been delivered. 

(2) XYZ LTD.  Sold services for ₹ 1,00,000 in feb-2020 and the services deliverd in during the same year 📆. 

Now let us analyse the above examples to ascertain the correct ⭕ of revenue realised for the year ending 31st march 2020.

(2) XYZ LTD. 'S revenue for year 2019-2020 is ₹ 1,00,000 as the goods have been delivered in the same financial year. 

(3) ABC CORPORATION sold goods on credit 💳 for ₹ 1,00,000 during the year ending 31st march 2020. The goods have been delivered in same year but the payment was received in June - 2020.

Now let us analyse the above examples to ascertain the correct ⭕ of revenue realised for the year ending 31st march 2020.

(3) ABC CORPORATION'S revenue for the financial year 2019-020 is ₹1,00,000, because the goods have been delivered to the customer during the same financial year. Revenue became due in the year 2019-20 it self. In the above example, revenue is realised when the goods are delivered to the customers. 

★[The concept of realisation states that revenue is realized at the time when goods or services are actually delivered]★

In short, the realisation occurs when the goods and services have been sold either for cash or on credit. It also refers to inflow of assets in the form of receivables. 

☆ Importance of realisation concept of accounting :-

• It helps in making the accounting information more objective. 
• It provides that the transaction should be recorded only when goods are delivered to the buyer. 

★Remaining 2 concepts discuss in 25th blog....★ 

                                      
                                          So wait my 25th blog....★

     

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