According to the revenue recognition principle, when should companies record revenue?

The revenue recognition principle requires companies to record revenue when the performance obligation is satisfied. This means that revenue should be recognized at the point when the company has fulfilled its commitment to provide goods or services to the customer, thereby transferring control of those goods or services.

This approach aligns with the underlying idea that revenue represents the economic benefits that an entity earns from its activities, and these benefits can only be recognized once the goods or services have been delivered or performed per the agreement with the customer. The principle is consistent with the accrual basis of accounting, which aims to match revenues with the expenses incurred to produce those revenues within the same accounting period.

In practice, recognizing revenue when the performance obligation is met ensures that the financial statements accurately reflect the company's performance and financial position at any given time. This method provides a clearer picture of a company's operations compared to other timing methods, such as recognizing revenue only when cash is received or when products are delivered, which may not accurately reflect when the earnings process is complete.