Realization is the point in time when revenue has been generated. This occurs when a customer gains control over the good or service transferred from a seller. Indicators of this date include the following:

  • When the seller has the right to receive payment.
  • When the customer has legal title to the transferred asset. This can still be the case even when the seller retains title to protect it against the customer’s failure to pay.
  • When physical possession of the asset has been transferred by the seller. Possession can be inferred even when goods are held elsewhere on consignment, or by the seller under a bill-and-hold arrangement. Under a bill-and-hold arrangement, the seller retains goods on behalf of the customer, but still recognizes revenue.
  • When the customer has taken on the significant risks and rewards of ownership related to the asset transferred by the seller. For example, the customer can now sell, pledge, or exchange the asset.
  • When the customer accepts the asset.
  • When the customer can prevent other entities from using or obtaining benefits from the asset.

Realization is a key concept in revenue recognition.

Related Courses

Bookkeeping Guidebook 
How to Audit Revenue 
Revenue Recognition