Realization vs. Recognition

The major differences between realization and recognition The words realization and recognition are indeed English terms that have…

The major differences between realization and recognition

The words realization and recognition are indeed English terms that have been used independently to mean different things and their contextual use has also been largely put to practice in different sentences. However, although the words have been independently been used in language, one of the fields that they have been accorded contextual combinations is the field of accounting. The terms are mainly used to define financial entities such as revenue, taxes and profits and losses. The contextual use of the words can be seen from an example where a business involved in selling of goods and services wants to assess their financial status. After comprehensive analysis of the company’s inventory records, the concerned business may find it has made revenues, in this context the term recognition will fit such that the company will be said to have recognized revenue. After the financial records are jotted down in the fiscal books and an audit conducted, the company may find that it has made profit, in this instance the term realization will be used such that it will be put; the company has realized remarkable profits. The same will also apply to recording and tracking of taxes and their payments.

The basic concept involved in recognition of revenue in any business is the progressive and continuous approach that characterizes it.  Revenue recognition is obtained by getting the difference between total expenditure and total revenue earned. In case the difference shows positive, then the revenue recognition will be profitable and if otherwise, revenue recognition will be a loss. Realization of revenue on the other hand will follow ultimately from revenue recognition. Since it presents the most accurate assessment of the nature and state of the business, realization of revenue involves more advanced methods of obtaining it that involve the use of financial entries in fiscal books to determine actual profit or loss. In business that sells their stocks on credit, actual realization or recognition is normally done after all debts have been settled.


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