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What Is Realisation Concept In Accounting?

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Monica Stott answered
  • What is the Realization Concept in Accounting?
The realization concept and convention is an important concept in accounting. It basically means that accounts recognize transactions. They do not just recognize the transactions when cash exchanges hands, but also when the transaction occurs at the point of sale, and this is when the transaction becomes legal, as it does not just become legal when the money is transferred.

The payment may not occur for days, weeks, or even months but it is legal once an agreement has been made and a contract has been signed.

  • What are other concepts in accounting?
There are another 4 set of important concepts that are important in accounting. These are 'Going Concern', 'Consistency', 'Prudence' and 'Matching Accruals'.

  • What is Going Concern?
Going concern is when an accountant presumes that a company is doing well and will not being going broke in the near future. This is important as the valuation of assets and liabilities will be based upon the fact that the business will be around for a few more years.

  • What is Consistency?
Consistency refers to a consistent pattern for transactions and suggests that all transactions will be processed in the same way, and each transaction and business that the money is coming from will be treated in a similar manner.

  • What is Prudence?
Prudence occurs where profits are not accounted for until the transaction is formally processed, and the funds are deposited into the account of the business. This is important as some transactions can take an extremely long time to be processed, or go from the agreement stage to the payment stage.

  • What is Matching Accruals
Matching accruals refers to expenses and highlights that expenses should balance and the accounts and receipts collected for expenses should all add up.
Anonymous Profile
Anonymous answered
Sales revenue should be recognised when goods and services have been supplied, costs are incurred when goods and services have been consumed

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