The concept which states that revenue should be recognized at the point when the sale is deemed to have been made is
Answer Details
The correct answer is realization.
The realization concept is a fundamental principle of accounting that governs when revenue should be recognized. It states that revenue should be recognized when it is earned, regardless of when payment is received.
In other words, revenue should be recognized at the point when the sale is deemed to have been made, even if payment has not yet been received. This is based on the idea that a sale has taken place when the seller has fulfilled their obligations to the buyer, which may include the delivery of goods or completion of services.
For example, if a company sells products to a customer on credit, the realization concept dictates that the company should recognize the revenue at the point when the sale is deemed to have been made, which is usually the point of delivery of the goods to the customer. The fact that payment has not yet been received does not affect the recognition of revenue.
The realization concept is important because it ensures that revenue is recognized in the correct accounting period, which is necessary for accurate financial reporting. It also helps to prevent the manipulation of financial statements by companies that might be tempted to defer revenue recognition to a later period to improve their financial performance.