The revenue recognition principle states that:

Question

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The revenue recognition principle states that revenue should be recognized (recorded) in the period that it is earned, regardless of when the cash is received. This ensures that financial statements accurately reflect a company's income for a given period. Option A is incorrect as revenue is recognized based on when it is earned, not when cash is received. Option C is incorrect as revenue is not recognized in the balance sheet, but rather it is recognized in the income statement. Option D is incorrect as revenue and common stock are two separate components and are not interrelated.

The Revenue Recognition Principle States That