The Revenue Recognition Principle is an important business concept that states revenue should be recorded in the period in which it is earned, rather than when cash is received. In other words, companies should consider the sales they make as the point in time when they are ‘earning’ that money. This ensures that financial statements accurately reflect the income and expenses associated with each accounting period. In order to ensure compliance with the Revenue Recognition Principle, businesses must have official records of their transactions and adjust their financial statements accordingly.