​Which concept states that profit are normally recognized when the title to the goods passes to the customer, not necessarily when money changes hands?​

Correct option is B

The Realisation Concept (also called the Revenue Recognition Principle) states that revenue should be recognized when it is earned, not necessarily when cash is received. In accounting, this usually means recognizing revenue when the ownership and risks of the goods or services have been transferred to the buyer, and the earning process is substantially complete.

For example, if a company sells goods on credit, the revenue is recorded when the goods are delivered and the customer takes ownership, even if the payment is received at a later date. This ensures that financial statements reflect the economic activity of a business accurately, rather than the mere inflow or outflow of cash.

This concept aligns with accrual accounting, where revenues and expenses are recorded when they are earned or incurred, regardless of the timing of cash transactions. It avoids misleading financial results due to delayed payments or advances.

Information Booster:

• Recognizes revenue when it is earned, not when cash is received.

• Typically occurs when title/ownership of goods is transferred.

• Forms a core principle in accrual basis accounting.

• Provides a more accurate picture of profitability and performance.

• Used for both credit and cash sales, ensuring consistency in reporting.

• Important in maintaining revenue recognition standards (AS/Ind AS/IFRS).

• Ensures revenue is not overstated or understated in financial statements.

Additional Knowledge:

(a) Matching Concept:
This concept requires expenses to be recorded in the same accounting period as the revenues they help to generate. It ensures the correct measurement of profit by matching costs with related revenues. However, it doesn't directly deal with when profits or revenues are recognized.

(c) Prudence Concept:
Also known as the Conservatism Concept, it states that revenues and profits should not be anticipated, but all probable losses should be accounted for immediately. While it influences profit recognition, it does not dictate the timing of recognizing revenue based on title transfer.

(d) Materiality Concept:
This concept implies that only transactions and events that are significant enough to influence the decision of the users of financial statements need to be recorded. It does not relate to when profit is recognized, but whether an item should be recorded at all based on its significance.