In accounting, the realization principle refers to the way revenue is to be recognized. The principle says that “revenue is to be recognized when the services have been rendered and the goods have been sold”. This means that no sale is recognized when a customer makes an advance payment. Till the time, the services are actually rendered; it is recorded as a credit entry to ‘unearned revenue’ account. When the revenue is earned, the “unearned revenue account” is debited while the revenue account is credited by the same amount.
An example is that when people buy tickets for a baseball match in advance, the case received is not recorded as revenue; it is credited to the unearned revenue account. On the day of the game, when the promised service has been delivered in the form of the match, the revenue is recognized.
An example is that when people buy tickets for a baseball match in advance, the case received is not recorded as revenue; it is credited to the unearned revenue account. On the day of the game, when the promised service has been delivered in the form of the match, the revenue is recognized.
