Answer: The generally accepted rules of accounting recognise the practices of accounting either when realisable or when realised or whichever is earlier. revenue should be recognised As per the generally accepted accounting practices, revenue should be recognised once it is realisable or realised whichever is earlier.
This recognition is based on accrual concept in accounting. For Example: Ram sells good to Shyam in the month of April and payment for the same is received in the month of July. Ram however can recognize the payment in the month of April itself if the transfer of the bills is duly received. However in the case when the advance payment to Ram would have been made to the month of March itself, the payment would have served as liability for his business as he was liable to provide Shyam with prompt supply of goods. Hence the revenue in this
case will be realised only in the month of April when the goods are supplied.
There are three exceptions to this general rule:
1. In the cases when the business recognises the business is engaged with the Instalment / Hire Purchase system, where the revenue is recognised as and when the installment is due and received.
2. In the cases when the revenue is recognized by any company or business during its various stages of production such as the business of construction.
3. In the cases when any business follows the cash basis system of accounting where the revenue is recognized only when the cash is received.