Glossary
Realisation concept
Profit is recorded when goods or services are delivered, not when cash is received.
What it means
The principle that revenue is recognised when the sale is complete and the goods or services have passed to the customer, regardless of payment timing.
Example
A credit sale is recorded as revenue when the goods are delivered, not when the customer later pays.
Why it matters
It fixes the point at which a sale counts, keeping revenue in the right period.
In practice
The realisation concept decides when a sale is recorded in the sales account and shown as revenue at the top of the income statement. Revenue is recorded once the goods change hands or the service is performed and the customer accepts responsibility to pay. It does not matter when the cash is settled.
Suppose a business dispatches goods worth RM4,000 on 28 March, but the customer pays in April. The RM4,000 belongs in the March income statement. It sits as a trade receivable until settled. A firm order or a deposit taken in advance is not yet realised, so it is not treated as sales.
Learners often confuse this with the accruals (matching) concept. Realisation decides whether and when revenue may be recognised. The matching concept then lines up the related costs against that revenue in the same period. One recognises income. The other pairs expenses with it.
If you find the concepts hard to tell apart, we can help. One of our teachers can help you link each one to a short example you can use in the exam. Book a trial class.
Related terms
Syllabus reference: Cambridge 0452 and 0985, syllabus for 2027 to 2029, sub-topic 7.1 Accounting concepts (page 19).
Definitions here are general accounting explanations for study. For your board's exact wording, see its official syllabus via Sources.
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