UK Accounting Glossary
When revenue can only be recognised when the goods or services that generated that revenue have been delivered.
A standard of accounting which accepts monies as revenue only after it has been earned; for example – such as when products are sold or services are supplied.
The realisation principle is the concept that revenue can only be recognised in the event that the underlying services or goods associated with the revenue have already been delivered or rendered, respectively. Thus, revenue is only suitable to be acknowledged once it has been fully earned.
Some easy ways to make sense of the realisation principle is by considering the following examples:
The realisation principle is frequently violated when a company desires to accelerate the recognition of revenue, and thus books revenues prior to all associated earning activities being concluded.
Auditors focus on this principle when deciding whether or not the revenues booked by a client are valid.
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This glossary post was last updated: 28th December 2018.