Q.Briefly explain about Realisation concept.

Realisation concept: record revenue only when a sale/service is actually completed (ownership passes), not on order or before.

Meaning

The realisation concept (revenue recognition concept) states that revenue should be recognised only when it is realised — that is, at the point when goods are sold or services are provided and the property in (ownership of) the goods legally passes to the buyer. Until that moment, no revenue and no profit may be recorded.

Key points

• Revenue is treated as earned when the transaction is complete, not when the order is received.
• It need not coincide with the receipt of cash — a credit sale is realised when goods are delivered, even though cash comes later.
• The concept ensures that profit is never anticipated; it may be recorded only after it is genuinely earned. …