According to realisation concept revenues are usually

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services. According to Realisation concept, revenues are usually recognized in the period in which goods were sold to customers or in which services were rendered. Sale is considered to be made at the point when the property in goods passes to the buyer and he becomes legally liable to pay. To illustrate this point, let us consider the case of A, a manufacturer who produces goods on receipt of orders. When an order is received from B, a starts the process of production and delivers the goods to B when the production is complete. B makes payment on receipt of goods. In this example, the sale will be presumed to have been made not at the time of receipt of the order but at the time when goods are delivered to B. But there are certain exceptions to this aspect of the concept Two among them are: (i) Sale on hire purchase basis wherein the ownership of the goods passes to the hire purchaser only when the last hire is paid but still sales are presumed to have been made to the extent of instalments received and instalments outstanding; and (ii) Contract accounts - though the contractee is liable to pay only when the whole contract is complete as per terms of the contract, yet the profit is calculated on the basis of work certified year after year according to certain accepted accounting norms. A second aspect of the realisation concept is that the amount recognized as revenues is the amount that is reasonably certain to be realized. However, lot of reasoning has to be applied to ascertain as to how certain 'reasonably certain' is. Yet, one thing is clear, that is, the amount of revenue to be recorded may be less than the sales value of the goods sold and services rendered. For e.g. when goods are sold at discount, revenue is recorded not at the list price but at the amount at which sale is made. Similarly, it is on account of this aspect of the concept that when sales are made on credit though entry is made for the full amount of sales, the estimated amount of bad debts is treated as an expense and the effect on net income is the same as if the revenue were reported as the amount of sales minus the estimated amount of bad debts. For instance, if a businessman makes credit sales of Rs. 500,000/- during a period and if the estimated amount of bad debts is Rs.2500, revenue is reported as Rs. 500,000 and there is a bad debt expense of Rs. 2,500. The effect on net income is the same as if the revenue were reported as Rs.4,97,500. 1.3.8 ACCOUNTING CONVENTIONS 1 Convention of Conservatism: It is a world of uncertainty. So it is always better to pursue the policy of playing safe. This is the principle behind the convention of conservatism. According to this convention the accountant must be very careful while recognizing increases in an enterprise's profits rather than recognizing decreases in profits. For this the accountants have to follow the rule, anticipate no profit but provide for all possible losses' while recording business
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10 transactions. It is on account of this convention that the inventory is valued 'at cost or market price whichever is less', i.e., when the market price of the Inventories has
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