Final answer:
The question refers to the accrual basis of accounting, which records revenue and expenses when they are earned and incurred, not when cash is exchanged. This contrasts with explicit and implicit costs, which are direct out-of-pocket expenses versus opportunity costs respectively, both crucial in understanding a company's cost and revenue relationships.
Step-by-step explanation:
The principle you have described is known as the accrual basis of accounting, which is a method where companies recognize revenue when it is earned and expenses when they are incurred, irrespective of when the cash transactions occur. This is in contrast to the cash basis of accounting, where transactions are recorded when cash is received or paid.
An example to Check Your Understanding might be receiving a paycheck, which often occurs on a regular basis. The period is typically bi-weekly or monthly, and the frequency of this event is therefore either every two weeks or once a month, consistently.
Furthermore, explicit costs refer to direct, out-of-pocket expenses like wages or materials, while implicit costs relate to the opportunity costs of using resources owned by the company for its operations instead of alternative uses. Knowing the difference between explicit and implicit costs is important to understand the true cost and revenue for a business, affecting how profitability is measured and reported.