Revaluation account and Realization Account are two types of nominal account, which are the concern with the partnership. The primary difference between these two accounts lies in several factors like the time of preparation, contents, objective, and so forth. In the given article, we’ve compiled all the difference between revaluation and realization account.
What is the Difference between a Revaluation account and a Realization account?
The following topic below are;
What is Revaluation?
Revaluation is a change in the price of a good or product, or especially of a currency, in which case it is specifically an official rise of the value of the currency about foreign currency in a fixed exchange rate system. Under floating exchange rates, by contrast, a rise in a currency’s value is an appreciation.
Altering the face value of a currency without changing its purchasing power is a redenomination, not a revaluation (this is typically Efficient by issuing a new currency with a different, usually lower, face value and a different, usually higher, exchange rate while leaving the old currency un-change; then the new replaces the old). Read and learn, The Difference between Revaluation and Realization Account.
Definition of Revaluation Account;
In accounting, a revaluation account implies an account open by the firm to keep a record of gains or losses, when assets are revalued, and liabilities are reassessed, on reconstitution of the firm. Reconstitution of the firm occurs in the following forms: 1. Admission of a new partner, 2. Change in profit and loss sharing ratio, 3. The retirement of an existing partner, and 4. Death of a partner.
What is Realization?
An act of becoming fully aware of something as a fact. It is three meaning, First, Conversion of assets, goods, or services into cash or receivables through the sale. Also, call actualization. Second, In accrual basis accounting, recognition of revenue upon its occurrence. When the title passes from the seller to the buyer with the associative creation of an obligation to pay. In contrast, in cash base accounting revenue is recognizing only when cash is receiving. And, Third, Carrying out an act or process to its completion.
Definition of Realization Account;
A realization account refers to an account open to the firm when it goes to dissolution to record the profit made from the sale of assets and loss tolerate on the settlement of liabilities.
When the partnership firm is under disintegration, then its account is close to books and is considered to the payment of losses and liabilities for the profit or earning of the profits. And to do this, to identify the net profit or loss, a realization account is ready. In proportion to the transfer of all partner’s capital account in which the profit and loss are shared by them.
What is the Difference between Revaluation and Realization Account?
Revaluation Account is ready only when there is any change in the value of asset and liabilities of the partnership firm, at the time of admission, retirement, and death of a partner. On the other hand, Realization Account is open when the firm goes into liquidation, to close the books of accounts and also to compute the net effect (profit or loss) arising due to the realization of assets and settlement of liabilities. Also, read it, What is the Difference between Leadership and Entrepreneurship?
The Points given below are noteworthy so far as the difference between revaluation and realization account is the concern:
- An account open to the firm to know whether there is any change in the value of assets and liabilities of the firm, during reconstitution, is a Revaluation account. On the other hand, a realization account is an account ready to ascertain the net profit or loss on the sale of assets or discharge of liabilities, during dissolution.
- Revaluation account comprises only those assets and liabilities, whose values are revised. Conversely, the realization account contains all the assets and liabilities.
- These two accounts mainly differ about the time of preparation of the two, i.e. revaluation account is ready when the firm is reconstituting, whereas the realization account is ready when the firm is dissolving.
- Revaluation account is ready at various events like admission, retirement, or the death of partners. Unlike realization, the account is ready only once, and that is when the firm discontinues its operations.
- In the case of a re-evaluation account, accounting entries are made based on the difference in the value of the book and the amount of re-valuation property and liabilities. On the contrary, accounting entries have been made at the book value of assets and liabilities.
- The balance of the re-evaluation account is transferring to the old partner’s capital account. On the contrary, the rest of the receipt account is taken for all the partners.
The content of Revaluation Account Vs Realization Account:
The following difference below are;
Revaluation Account records the effect of re-valuation of assets and liabilities. Realization Account records the realization of assets and settlement of liabilities.
It is ready to find out the net profit/loss of re-valuation. It is ready for determining net profit/loss on the realization of assets and settlement of liabilities.
It is ready at the time of admission, retirement, or death of a partner. It is ready at the time of the dissolution of the firm.
In this account, only changes in assets and liabilities are records. In this account, all assets and liabilities are records.
Preparation of Account:
This account may be ready on several occasions during the life of a firm. This account is ready only once during the life of a firm.
Profit or Loss:
The Profit/Loss on revaluation is transferring to old partners capital, accounts in the Profit Sharing Ratio. The Profit/Loss on realization is transferring to all partner’s capital accounts.