The Revenue Recognition Principle is an accounting guideline that determines when revenue should be recorded in financial statements. According to this principle, revenue is recognized when it is earned and realizable, typically when goods or services are delivered to customers, regardless of when payment is received. This ensures that financial statements accurately reflect a company's performance during a specific period. This principle is crucial for maintaining consistency and transparency in financial reporting. It helps businesses, investors, and regulators understand a company's financial health by providing a clear picture of income generated from operations. Adhering to the Revenue Recognition Principle is essential for compliance with accounting standards like GAAP and IFRS.