The revenue recognition principle states that revenue is recognized when:

• A. expenses related to the revenue are paid
• B. it is earned and realizable, regardless of when cash is received
• C. an order is placed by a customer
• D. cash is received from customers

Answer: (B)

Verified step by step guidance

1. Understand the revenue recognition principle: This principle is a fundamental concept in financial accounting that dictates when revenue should be recognized in the financial statements. It ensures that revenue is recorded in the period it is earned, not necessarily when cash is received.
2. Clarify the key criteria for revenue recognition: Revenue is recognized when it is both earned (the company has performed the service or delivered the goods) and realizable (it is reasonably certain that payment will be received).
3. Eliminate incorrect options: Review the provided choices and eliminate those that do not align with the revenue recognition principle. For example, 'expenses related to the revenue are paid' and 'an order is placed by a customer' do not meet the criteria for revenue recognition.
4. Focus on the correct option: The correct answer is 'it is earned and realizable, regardless of when cash is received.' This aligns with the principle that revenue recognition is based on earning and realizability, not the timing of cash receipt.
5. Apply the principle in practice: In real-world scenarios, ensure that revenue is recorded in the appropriate accounting period based on the completion of performance obligations and the certainty of payment, as outlined by the revenue recognition principle.