Realizationsprincippet

Realisationsprincippet, or the realization principle, is an accounting principle used in Denmark and some Nordic accounting traditions to determine when profits and revenues should be recognized in financial statements. The central idea is that income is not recorded until a transaction is realized—that is, until the earnings process is sufficiently complete and the amount can be measured with a reasonable degree of certainty.

In practical terms, realization occurs when a sale is completed, goods or services have been delivered, and the buyer assumes the risks and rewards of ownership. At this point, the revenue associated with the transaction is recognized, and any related gains or losses are recorded. The principle aims to prevent the premature recognition of income, ensuring that reported profits reflect completed economic events rather than promises, speculative gains, or contingent arrangements.

Realisation has implications for how businesses present their financial results, particularly in relation to inventories, long-term contracts, and asset sales. It is often contrasted with cash-basis accounting, which recognizes revenues when cash is received, and with other prudence- or accrual-related concepts that govern when gains are considered realized for tax and reporting purposes.

Historically, the realization principle has been a foundational element of Danish GAAP and similar accounting frameworks. In modern international standards, revenue recognition criteria have evolved toward more explicit performance obligations and control-transfer tests, but the underlying objective remains: to ensure that profits reflect completed and realizable transactions rather than provisional or speculative gains.