What is the difference between Accrual Assumption and Revenue Recognition Concept?
Accrual assumption is used both for revenue and expenses. It states that business should recognise/ make entry in account books as soon as expenses or revenue become due. It does not matter whether the expenses have been actually paid in cash or income has been actually received in cash.
Revenue recognition is regarding revenue only. It states that business should recognise revenue only when it becomes due. But when does revenue becomes due? It becomes due only after business has completed its responsibility of selling/delivering goods or services in a particular transaction. Once the business does this it becomes an obligation on the counter party to make the payment for goods/services to the business.
For example when business receives advance payment for delivering of goods, it can not be termed as sales/revenue (revenue can't be recognised right now), only when the business will deliver the goods to the customer it shall recognise revenue.
In other example, business delivers the goods on credit. It should recognise the revenue no matter if the goods are sold on one month's credit. Business has completed its responsibility in this transaction.
Revenue recognition is regarding revenue only. It states that business should recognise revenue only when it becomes due. But when does revenue becomes due? It becomes due only after business has completed its responsibility of selling/delivering goods or services in a particular transaction. Once the business does this it becomes an obligation on the counter party to make the payment for goods/services to the business.
For example when business receives advance payment for delivering of goods, it can not be termed as sales/revenue (revenue can't be recognised right now), only when the business will deliver the goods to the customer it shall recognise revenue.
In other example, business delivers the goods on credit. It should recognise the revenue no matter if the goods are sold on one month's credit. Business has completed its responsibility in this transaction.