Revenue Recognition Principles

Revenue recognition principles are rules that govern how and when a business accounts for its income. Essentially, they determine the point at which a company can officially declare that it has earned money from its sales or services. Generally, revenue is recognized when goods are delivered or services are performed, and the payment is likely to be collected. This ensures that financial statements accurately reflect a company's performance in a specific period, providing a clear picture of its financial health and avoiding misleading information about its profitability.