What principle requires revenue to be recorded when earned, not when cash is received?

What principle requires revenue to be recorded when earned, not when cash is received? The revenue recognition principle requires revenue to be recorded when it is earned.

This principle separates the timing of a business’s performance from the timing of payment. If a company completes work in December but receives the customer’s cash in January, the revenue generally belongs in December, provided the applicable recognition conditions have been met.

The rule is closely related to accrual accounting, which records economic events when they occur rather than when cash changes hands. Modern U.S. GAAP and IFRS use detailed revenue standards rather than relying only on a one-line textbook slogan. Under IFRS 15 and ASC 606, a company identifies the contract, identifies performance obligations, determines the transaction price, allocates that price, and recognizes revenue as obligations are satisfied.

The common mix-up is choosing “accrual principle.” Accrual accounting is the broader method covering both revenue and expenses; the revenue recognition principle is the specific concept about when revenue is recorded. Matching is about associating expenses with related revenue, while conservatism concerns cautious measurement.