According to the revenue recognition principle, when is revenue typically recognized?

Revenue is typically recognized when goods or services are delivered and evidence of an arrangement exists because this aligns with the underlying principle of revenue recognition, which focuses on the completion of performance obligations. The revenue recognition principle is grounded in the idea that revenue should be recognized when it is earned and realizable. In practical terms, this means that a company should recognize revenue when it has transferred control of the goods or services to the customer, fulfilling its contractual obligations.

This timing ensures that the financial statements accurately reflect the economic events that have occurred, providing a clear picture of a company's financial performance during a specific period. Recognizing revenue only at the time of payment receipt would not accurately represent the company's earnings or obligations at that moment. Similarly, delaying recognition until after a transaction is completed or when future earnings are realized does not adhere to the guideline that revenue should be recognized in a manner consistent with the delivery of goods or services, thereby misleading stakeholders about the company’s true financial health.