Question

Please explain the following terms, with examples, in your own words:

A) Realized and realizable transactions

B) Recognized (or recognition) of transactions

C) Please identify the firm and industry that you analyzed as part of your annual report valuation project and explain how the firm reports revenue. Please include any abnormalities that you believe exist in the revenue recognition of your firm or industry, as compared to other firm or industries that we have studied.

Answer 1

A) Realized and realizable transactions- Realized transaction is the transaction that has already been done while Realizable transaction is the transaction that has not been done but company expects that it will take place in the future.

Example-Realized and Realizable revenue- Realized revenue is the revenue that company already received while Realizable revenue is the revenue that company has not received yet but expects to receive in the future.

(B):Recognized (or recognition) of transactions- This principle says that a monetary transaction should be recorded when it is recognized or realized. Only monetary transactions are recognized.

Example: Revenue Recognition- This principle says that revenue is recognized when it is realized or realizable in some specific conditions. This is generally accepted accounting principle (GAAP).