Realisation Concept

The realization concept and convention is an important concept in accounting. It basically means that accounts recognize transactions and any profits arising from it at the point of sale or transfer of legal ownership. They do not just recognize the transactions when cash exchanges hands, but also when the transaction occurs at the point of sale, and this is when the transaction becomes legal, as it does not just become legal when the money is transferred. Therefore if a big client of yours just sign a business contract, it can be realised as a legal transaction. Even though you might receive cash months later, the contract here act as a confirmation that the sales will occur and therefore the realisation concept here allows the creation of such transaction.