Realisation

'Realisation' refers to the conversion of assets, profits or losses into cash.

Realisation can occur either on the receipt or payment of cash, or at an earlier time when such receipt or payment of cash becomes virtually certain.

Generally accepted accounting practice allows the recognition of income and assets only when their realisation in the form of cash, or other assets that are readily realisable, can be assessed with reasonable certainty.

The concept of realisation arose for the protection of the creditors of companies, to ensure that sufficient cash was available to distribute profits without a company or other entity becoming insolvent. Only realised profits may be distributed under company law.

See also

• Unrealised profit
• Accruals basis
• Contingent assets
• Recognition