Realisation Concept – Recognition at the time when sales value is collected

Recognition at the time when sales value is collected. Many concerns use the cash basis for reeognising revenue rather than the accrual basis. In case of accrual basis, as explained above, revenue is taken to be realised when the payment for goods or services becomes due to the business. For example, in case of trading business, revenue will be taken to have been realised when the goods have been sold though the payment might be received later on. This is because as the goods have been sold away, the business becomes entitled to receive payment for thetn. In case, cash basis is followed, the revenue will be taken to have been realised only when payment for goods or services has been actually received. This basis for recognising revenue is generally followed in case of-sale of goods on instalment system (i.e., a system where sales value is to be collected in agreed number of instalments). The basis is not very satisfactory because it fails to match cost with the revenue in those case cases where there is a considerable time Jag between sale of goods or rendering of services and receiving payment for them.