The realization concept of accounting is a revenue recognition principle that determines when a business realizes revenue during the selling and earning process. The realization principle states that revenue can only be recognized once the underlying goods or services associated with the revenue have been delivered or rendered. In other words, revenue can only be recognized after it has been earned. The realization principle is most often violated when a company wants to accelerate the recognition of revenue and books revenues in advance of all related earning activities being completed.

The realization principle is a key concept in revenue recognition. It deals with revenue recognition, i.e., profit should be realized when goods are transferred or risk and rewards are transferred. The realization principle does not associate with a cash receipt, i.e., income is to be realized, or revenue is to be recognized even if the cash is not received. For example, revenue cannot be recognized if the advance is received, but goods are not transferred. It is to be recognized only when goods are delivered.

The realization principle of accounting revolves around determining the point in time when revenues are earned. The concept followed by the realization principle is that revenue is realized when the goods and services produced by a business are transferred to a customer, either for cash, an asset, or a promise to pay cash or other assets in the future. The realization principle of accounting is one of the pillars of modern accounting that provides a clear answer to the question of when profit is actually earned.

In summary, the realization concept of accounting is a revenue recognition principle that determines when a business realizes revenue during the selling and earning process. It states that revenue can only be recognized once the underlying goods or services associated with the revenue have been delivered or rendered. The realization principle is a key concept in revenue recognition and revolves around determining the point in time when revenues are earned.