The Difference between Revaluation Account and Realisation Account
When it comes to accounting, two terms that are often used interchangeably are revaluation account and realisation account. While both serve as important tools for accounting professionals, there are distinct differences between the two.
Revaluation Account
Revaluation account refers to an accounting method used to measure the market value of an asset or liability. This is generally done in the case of long-term assets such as land, buildings or machinery, which may have appreciated or depreciated over time due to various factors such as changes in market conditions or currency fluctuations.
When a company uses the revaluation account method, the value of the asset is adjusted on the balance sheet to reflect its current market value. Any changes in the value of the asset are recorded in the revaluation account, which is usually a separate account from the profit and loss account.
It is important to note that the revaluation account method is not a mandatory accounting practice, but it is often used by companies to provide a more accurate picture of their assets’ value.
Realisation Account
Realisation account, on the other hand, refers to an accounting term used to record the proceeds of the sale of a company’s assets. This account is used when a company decides to sell off some of its assets or when it goes through a liquidation process.
The realisation account keeps track of all the sales proceeds and any related expenses such as legal fees, commissions, and taxes. Once all the assets are sold, any remaining balance in the realisation account is usually distributed to the company’s shareholders.
In simple terms, revaluation account measures the current value of an asset, while realisation account measures the proceeds from the sale of an asset.
The Bottom Line
In conclusion, while both revaluation account and realisation account serve as important tools for accounting professionals, they are used for different purposes. The revaluation account method is used to measure the current value of an asset, while the realisation account is used to record the proceeds from the sale of an asset. Understanding the differences between these two terms is essential for maintaining accurate financial records and making informed financial decisions.
Table difference between revaluation account and realisation account
| Revaluation Account | Realisation Account |
|---|---|
| It is an account that records the revaluation of assets and liabilities of a company. | It is an account that records the sale of assets and payment of liabilities of a company. |
| The revaluation account is used when there is a change in the value of a company’s assets or liabilities. | The realisation account is used when the company decides to sell its assets or pay off its liabilities. |
| It is normally prepared at the end of the financial year to reflect the change in the value of assets or liabilities. | It is prepared whenever the company decides to sell an asset or pay off a liability. |
| The revaluation account is used to adjust the book value of assets or liabilities. | The realisation account is used to record the actual amount received or paid for the sale of an asset or payment of a liability. |
| Through the revaluation account, the company can determine the actual value of its assets or liabilities and adjust its financial statements accordingly. | The realisation account helps the company track the amount it received or paid for the sale or payment of a liability, making it easier to calculate profits or losses. |