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Revenue Recognition Principle

The realization concept is important for determining the revenues during the accounting period.

Revenue is the income earned by providing Services/selling of products. E.g. Commission, Sales receipt etc.,

In case of Sale of goods- Revenue is recognized only on the date of passing of title of goods . It does not include on the date of placing of order etc.,

In case of Works contract: The revenue is recognized on the basis of cash received on partially completed remaining is treated as sale.

In case of Rent /Interest on loan paid: On the basis of the Passage of time

In case of Royalty: on the basis of Production /sale of products.

Prepaid, Income received in advances are to be ignored for the purpose of Revenue Recognitions.

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