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Theory Base of Accounting — Account STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceAccountTheory Base of Accounting4 Marks
Question
Explain the following briefly with appropriate example:
Revenue Recognition (Realisation) Concept.
✓

Answer

Revenue Recognition (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 is established. It is to be noted that recognising revenue and receipt of an amount are two separate aspects.
Example: An enterprise sells goods in February, 2018 and receives the amount in April, 2018. Revenue of this sales should be recognised in February, 2018, i.e., when the goods are sold because the legal obligation to receive the amount is established (upon sales) in February, 2018. Let us take another example. Suppose, an enterprise has received an advance in February, 2018 for the sales to be made in May, 2018, revenue shall be recognised in May, 2018, upon sales having been made because the legal obligation to receive the amount is established in May, 2018.

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