Accounting principles demand realization of the expense or, revenue which is related to the current year. It demands the same for the expenses or, revenues which are related to a specific category (i.e.- capital expenditure or, revenue expenditure).
The realization concept states:
“A revenue or, expenditure should be added to its title whenever it is related. The relation can be in any form as- title match, expenses done for improvement, the expenses or, revenues related to the current year.”
There are worked examples from the previous concepts or, principles.
Watch those examples from accrual basis.
Here, we will start with a little different example.
Example of The realization concept:
1. An improvement expense of $. 5000 is done on the existing building which has a cost of $. 200000.
= The expense should be added to the building’s value (expenses done for improvement).
2. A rent payment of $. 2000 is related to next year but, paid in the current year.
=The amount should be deducted from the rent amount provided in the trial balance. (Title match, related to the current year)
Usage The realization concept:
This principle is used perfectly in the accounting procedures as without its implementation it is not possible to record any revenue or, expense in full.
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