Briefly explain the revenue realisation concept with an example.
Revenue is considered as income earned on a particular date when it is realised; say when a transaction has been entered and obligation to receive the amount has been established.
- Revenue, the gross inflow of cash, arises from
- Sale of goods and services rendered by an enterprise
- Enterprise resources used by others which yield interest, royalties and dividends
- Revenue is realised when a legal right to receive arises i.e. realised on a particular date when goods are sold or services rendered.
For example, an enterprise sold goods worth Rs. 30,000 in January, 2016 and receives the amount in March, 2016. Revenue of this sale should be recognised in January, 2016, when the goods are sold. Also, commission for March, 2016, even if received in April 2016, will be taken into Profit and Loss A/c of March, 2016.