According to the Revenue Recognition Principle, when should a business recognize its revenue?

The Revenue Recognition Principle states that revenue should be recognized when it is earned, which typically occurs when the product or service has been delivered or performed, and there is a reasonable certainty regarding the collectibility of the payment. This principle is fundamental in accrual accounting, as it aligns revenue recognition with the time period in which the earning activities actually took place, ensuring that financial statements accurately reflect the financial position and performance of a business.

Recognizing revenue at the point it is earned, rather than when cash is received, better matches revenue with the expenses incurred to generate that revenue. This provides a clearer picture of a company's financial health. For example, if a business completes a service but has not yet received payment, it can still recognize that revenue at the moment the service is rendered. Similarly, waiting until the end of the fiscal year or when a customer places an order does not correctly reflect the timing of when earnings have been realized. Thus, the correct answer aligns with the core principles of accrual accounting that promote accurate financial reporting.