Accounting: Realized Methods
Companies can use many different methods for their accounting. Some companies use a cash method where they only account for money once it is actually received or spent. Another method is to account for money when it is realized. This means that once money is earned it will be noted in the company's financial journals. Different realized accounting methods include accrual based, net realizable value, realized value and installment sales.
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Accrual Based Accounting
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One of the two most common methods of accounting is the accrual based method. This is a realized method of accounting. In this method, revenue is recognized when it is earned and it is realized. This means that companies can account for revenue when a service is provided or a product is sold. The money does not have to be actually received for it to be accounted for in the company's financial books.
Net Realizable Value
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The net realizable value method is another realized accounting method used with inventory. In this method, the value of a joint product, when it is split, is the sales price after deducting the costs incurred during processing. If there is no processing, the net realizable value is simply the value when the joint product is split. Under this method, common costs are also allocated in proportion to their net realizable values. This is based on the total value of all the quantities.
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Realized Value Approach
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Another realized accounting method is the realized value approach. This accounting method is used for byproducts and scrap. In this method, the value of these products is not realized until they are actually sold. Once these items are sold, their value can then be recognized as some other kind of income for accounting purposes. This is the easiest accounting method to use for byproducts of a company.
Installment Sales Method
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A final realized method is the installment sales method of accounting. This method assists companies with accounting problems that can occur from having buyers make payments for services or inventory over a long period of time. In these situations revenue is not recognized until the company actually receives a cash payment. This method involves more bookkeeping, as the owner will have to keep track of the yearly gross profit as well as the individual installment sales and payments.
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