According to the revenue principle, when should revenue be recorded?

The revenue principle dictates that revenue should be recorded when it is earned, which means when the goods or services have been delivered to the customer and the company has fulfilled its obligation. This principle emphasizes the matching of revenue with the expenses incurred to earn that revenue within the same accounting period, providing a more accurate representation of a company's financial performance.

Recording revenue at the point when it is earned helps ensure that financial statements reflect the actual work performed rather than the cash flow, which may not accurately reflect a company’s operations in a given time period. For instance, if a company provides a service in December but doesn't receive payment until January, under the revenue principle, the revenue should be recognized in December when the service was rendered, not when the cash is received.

Understanding this principle is crucial for accurate financial reporting and helps analysts and stakeholders gauge the company's performance consistently over time, irrespective of cash transactions.