Final answer:
The Revenue Recognition Principle states that revenue should be recognized when it is earned and realized or realizable. Adjusting entries are needed to ensure that revenue is recognized in the correct accounting period.
Step-by-step explanation:
The Revenue Recognition Principle states that revenue should be recognized (recorded) when it is earned and realized or realizable. This means that revenue should be reported in the accounting records when the goods or services have been provided to the customer and the payment is reasonably assured. This principle is important because it ensures that revenue is recognized in the correct accounting period and that financial statements provide a true and fair view of a company's financial performance.
Adjusting entries are necessary to ensure that revenue is recognized in the appropriate accounting period. For example, if a company provides services in December but does not receive payment until January, an adjusting entry is needed to recognize the revenue in December and match it with the related expenses incurred in that period.