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The definition of "realization" is well defined by multiple sources in accounting terms while we google it.

But, can someone explain in terms of real life example that suits the meaning of realization?

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  • You should indicate what you think it means to help get better answers.
    – ApplePie
    Commented Sep 26, 2016 at 21:31

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Realization is, literally, when something is made real.

For example, let's say that you own some stock. You bought the stock for $1000, and after many years the stock is worth $10,000. Your investment has gained $9,000. However, you don't actually have this $10,000; you just own stock that is supposedly worth $10,000 on paper. Tomorrow, the value of the stock could plummet and only be worth $8,000. But if you sell your stock today and obtain this $10,000, the gain has now become real. You have realized a $9,000 gain.

In investing, realization of a gain or loss occurs when an asset that you own has been sold for more or less than what you purchased it for. Before the asset is sold, you only have a theoretical gain or loss based on what you might receive if you sold the asset today. And tomorrow, that theoretical gain or loss could change.

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Realization is when you actually have something in hand, it isn't just theoretical anymore. For instance, you may win the lottery, but until they hand you a check, you haven't realized the windfall. Another example is that you may be paid a particular hourly wage, but until you cash the paycheck, you haven't realized the pay.

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  • The employer realizes the expense (and W2 totals) when they cut the check. Please tell me more about deferring my last 2016 paycheck into 2017.
    – user662852
    Commented Sep 27, 2016 at 0:36
  • @user662852 Did his answer say "isn't taxable until you cash the paycheck?" No it did not. This answer is correct. Also note the difference between 'earning' an hourly wage Mon-Thursday, vs having a check in hand on Friday that actually allows you to cash that check. Would it be legally owed to you if they don't give you the check? Yes. But could you take your time card to the store and buy something? No.
    – Grade 'Eh' Bacon
    Commented Sep 27, 2016 at 12:47

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