Revenue Recognition Principle

The Revenue Recognition Principle is an accounting guideline that determines when a business should record its income. Essentially, it states that revenue should be recognized when it is earned, not necessarily when cash is received. For example, if a company delivers a product or completes a service, it can recognize that revenue, even if the payment is received later. This principle ensures that financial statements accurately reflect a company's performance during a specific period, providing a clearer picture of its financial health.