— Kishore V, SME and ACW at Edumarz.
Dual aspect Concept:
Every transaction or occurrence, according to this notion, has two Aspects, or dual effects.
For example, if Arun starts a business with $5,000 in cash, the business receives $5,000 in cash on the one hand and incurs an obligation on the other, requiring the business to pay $5,000 to Arun.
This is the notion that recognises that for every debit, there is an equal and opposite credit. This is the foundation of the complete double-entry book-keeping system.
The foundation accounting equation, Capital+ Liabilities = Assets, is derived from this concept.
Revenue recognition (realisation) Concept:
The gross inflow of cash resulting from:
i) an enterprise’s selling of goods and services; and
(ii) the use of the enterprise’s resources by others, earning interest, royalties, and dividends are referred to as revenue.
Second, revenue is presumed to be realised when a legal right to receive it is established, i.e. when things are sold or services are given.
As a result, credit sales are recorded as revenue on the day they are made rather than when the buyer pays.
Rent, commissions, interest, and other types of revenue are all recognised on a time basis.
For example, rent for March 2017 will be credited to the profit and loss account for the financial year ending March 31, 2017, rather than the financial year commencing April 2017.
In the same way, if interest for April 2017 is collected in advance in March 2017, it will be applied to the profit and loss account for the financial year ending in March 2018.
There are a few exceptions to this revenue recognition requirement:
When contracts take a long time to complete, such as construction work, a proportionate amount of revenue depending on the portion of the contract fulfilled at the end of the period is recognised as realised.