Question

The revenue recognition principle dictates that revenue be recognized in the accounting period in which it is:________

Answer 1

The revenue recognition principle dictates that revenue be recognized in the accounting period in which the performance obligation is satisfied.

The revenue recognition principle is a feature of accrual accounting which requires that revenues are recognized on the income statement, in that time period when they are earned and realized, not necessarily when the cash is received.

The principle is important because it enables a business to show profit and loss accurately, since the revenue is recorded when it is earned, not when it is received. Usage of this principle also helps with financial projections, which allows the businesses to project future ventures more accurately.

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