The correct answer is: B. Goods are delivered to customer.
The realization concept is a principle in accounting that revenue is recognized when goods or services are transferred to the customer. This means that revenue is not recognized when the order is received, when the goods are shipped, or when the money is collected. Instead, revenue is recognized when the goods are delivered to the customer and the customer has accepted them.
There are a few reasons why the realization concept is important. First, it helps to ensure that revenue is recognized in the correct period. If revenue were recognized when the order was received, it would be possible to recognize revenue for goods that have not yet been delivered or that may never be delivered. This would distort the financial statements.
Second, the realization concept helps to ensure that revenue is recognized only when it is earned. If revenue were recognized when the goods were shipped, it would be possible to recognize revenue for goods that have not yet been accepted by the customer. This would also distort the financial statements.
Finally, the realization concept helps to ensure that revenue is recognized only when it is realized. This means that revenue is not recognized until it is actually received in cash or its equivalent. This helps to ensure that the financial statements are accurate and that the company is not overstating its revenue.
The realization concept is a fundamental principle in accounting and it is important to understand how it works. By understanding the realization concept, you can better understand the financial statements and make informed decisions about the company.
Here is a brief explanation of each option:
- A. Money is realised from the debtors. This is not the correct answer because revenue is recognized when goods or services are transferred to the customer, not when money is collected.
- B. Goods are delivered to customer. This is the correct answer because revenue is recognized when goods or services are transferred to the customer.
- C. Order is received. This is not the correct answer because revenue is recognized when goods or services are transferred to the customer, not when the order is received.
- D. none of the above. This is not the correct answer because option B is the correct answer.