Revenue recognition is an accounting principle that determines when a company can record its income. This process ensures that revenue is recognized in the financial statements when it is earned, rather than when cash is received. For example, if a company sells a product, it recognizes the revenue at the time of sale, even if the customer pays later. This helps provide a clearer picture of the company's financial health. The Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) provide guidelines for revenue recognition. These standards help ensure consistency and transparency in financial reporting, allowing investors and stakeholders to make informed decisions based on accurate information.