Key takeaways
What this article covers, in order:
- What "realised" means in practice
- How AS 9 applies the realisation concept
- How Ind AS 115 restates the idea
- Worked example: a Coimbatore pump maker at year end
- The realisation concept and its neighbours
- Do not confuse it with a realisation account
The realisation concept says that revenue is recorded only when it has been earned, that is, when you have delivered the goods or performed the service and have a right to consideration that is reasonably certain to be received. Taking an order, receiving an advance or signing a contract does not by itself create revenue, and waiting for the cash is not required either.
The idea is simple, but it decides which financial year your sales land in, and that affects your profit, your tax and the story your accounts tell a lender. This article explains the concept, how the Indian accounting standards express it, and how to apply it with real numbers.
What "realised" means in practice
Older textbooks say revenue is realised when the sale is complete. Modern standards are more precise, but the core test has two parts:
- Performance is done. You have delivered what you promised, or the relevant part of it.
- The amount is reliable. You can measure the consideration and there is no significant doubt about collecting it.
If both are true, you record revenue even if the customer has 60 days to pay. If either is missing, you wait, even if cash is already in your bank.
How AS 9 applies the realisation concept
AS 9, Revenue Recognition, issued by ICAI, applies to entities that do not follow Ind AS, which includes most small and medium businesses. It defines revenue as the gross inflow of cash, receivables or other consideration arising from ordinary activities: selling goods, rendering services, and others using your resources in return for interest, royalties and dividends. Its rules by type of income are:
Sale of goods
Revenue is recognised when the seller has transferred the property in the goods to the buyer for a price, or has transferred the significant risks and rewards of ownership and kept no effective control, and no significant uncertainty exists about the amount of consideration that will be derived from the sale.
Rendering of services
Revenue is usually recognised as the service is performed, either by the proportionate completion method, where revenue follows the stages of work done, or by the completed service contract method, where revenue is recognised when the service is completed or substantially completed.
Interest, royalties and dividends
These are recognised only when there is no significant uncertainty about measurability or collectability. Interest accrues on a time basis, royalties on an accrual basis under the agreement, and dividends when the owner's right to receive payment is established.
Uncertainty
If the consideration cannot be measured within reasonable limits at the time of the sale, recognition is postponed. If doubt about collection arises only after the sale has been recognised, AS 9 prefers a separate provision for that doubt rather than reversing the revenue.
How Ind AS 115 restates the idea
Companies on Ind AS follow Ind AS 115, Revenue from Contracts with Customers. It replaces the risks-and-rewards language with transfer of control and a five-step model:
- Identify the contract with the customer.
- Identify the performance obligations in it.
- Determine the transaction price.
- Allocate the price to the performance obligations.
- Recognise revenue when, or as, each performance obligation is satisfied.
Step 5 is the realisation concept in modern form: you recognise revenue when control of the goods or services passes to the customer, at a point in time or over time. For most simple product sales the outcome matches AS 9. Differences show up in bundled contracts, such as a machine sold with installation and a year of support, where Ind AS 115 makes you split the price across each promise.
Worked example: a Coimbatore pump maker at year end
Nilgiri Pumps, a Coimbatore manufacturer that follows AS 9, closes its books on 31 March 2026. Four transactions sit near the year end.
1. Advance received in March, pumps delivered in April
A Madurai farm cooperative orders pumps worth ₹8,00,000 and pays an advance of ₹2,00,000 on 10 March 2026. The contract says risk passes on delivery at the cooperative's site. The pumps leave the factory on 29 March and arrive on 2 April 2026.
- On 10 March: the ₹2,00,000 is a liability, an advance from customer, not revenue.
- On 31 March: the pumps are in transit and risk has not passed, so they stay in Nilgiri's closing stock at cost. No revenue in FY 2025-26.
- On 2 April: delivery transfers the risks and rewards, so Nilgiri recognises revenue of ₹8,00,000 in FY 2026-27, sets off the ₹2,00,000 advance and records ₹6,00,000 as receivable.
Had the contract said risk passes when goods leave the factory, the same sale would have been March revenue. The delivery terms, not the invoice date, decide.
2. Annual maintenance contract paid in advance
On 1 January 2026 a hospital pays ₹1,20,000 for a 12-month maintenance contract. The service is performed evenly over time, so Nilgiri uses the proportionate completion approach:
- Revenue for January to March 2026: 3/12 of ₹1,20,000 = ₹30,000, recognised in FY 2025-26.
- The remaining ₹90,000 is carried as income received in advance and recognised over April to December 2026.
3. A sale with doubtful consideration
Nilgiri delivers pumps worth ₹3,00,000 on 20 March to a new distributor on "pay what you can sell" terms, with a right to return unsold units and no fixed price agreed. The amount of consideration is not measurable within reasonable limits, so AS 9 says revenue is postponed until the distributor sells the pumps on or the price is fixed. The pumps remain Nilgiri's inventory at the year end.
4. A customer who becomes doubtful after the sale
A ₹1,50,000 sale made and delivered in February is properly recognised. In late March the customer hits trouble and payment looks doubtful. Nilgiri keeps the ₹1,50,000 in revenue and creates a provision for the doubtful amount, as AS 9 prefers, rather than reversing the sale.
The effect on the year
These four items carry ₹13,70,000 of total contract value, yet only ₹1,80,000 of it, the ₹30,000 maintenance share plus the ₹1,50,000 February sale, is FY 2025-26 revenue, with a provision against the February debt. Applying the realisation concept correctly moves ₹8,00,000 into next year and keeps ₹3,00,000 out until it is earned.
The realisation concept and its neighbours
- Accrual concept: realisation decides when revenue is recorded; accrual records it, and the related expenses, in that period regardless of cash.
- Matching concept: once revenue is in a period, the costs of earning it go in the same period. That is why the in-transit pumps stay in stock until April.
- Prudence: unrealised gains, such as a rise in the market value of stock, are not recognised as revenue. Expected losses are provided for.
Do not confuse it with a realisation account
In partnership accounts, a realisation account is the account opened when a firm is dissolved, to sell off assets, pay liabilities and find the profit or loss on dissolution. It shares a word with the realisation concept but is a separate topic.
Common mistakes to watch for
- Booking advances as sales. An advance is a liability until you perform.
- Using the invoice date as the test. GST has its own time-of-supply and invoicing rules, so a tax invoice may be raised, and GST may become payable, before accounting revenue arises. The two timings are separate questions.
- Recognising a full annual fee upfront. Subscription and maintenance income is earned over the service period.
- Ignoring delivery terms. Read whether risk passes at dispatch or on delivery before deciding the year.
- Reversing revenue for later collection doubts. Under AS 9, provide for the doubtful debt instead.
hellobooks< / a > -helps-you-apply-it">How HelloBooks helps you apply it
HelloBooks keeps the timing decisions visible rather than buried in a spreadsheet:
- Customer advances are recorded as liabilities and applied against the invoice when you deliver, so the March advance never shows up as March sales.
- Period-end closing handles accruals and prepayments, and journal entries let you carry the unearned part of a maintenance fee as income received in advance and release it as the service is performed.
- Recurring invoices bill service contracts on schedule, and you can convert a quote to an invoice when the work is actually done.
- Period locking and an audit trail show exactly when each entry was made and stop late changes to a closed year.
Your accountant still makes the judgement on contract terms and uncertain consideration. HelloBooks records that judgement consistently.
This is general information as of November 2026, not accounting or tax advice. Check the full text of AS 9 or Ind AS 115, as applicable to you, or ask a qualified CA.
