Final answer:
Revenue is recorded when services have been performed or products have been delivered, following the revenue recognition principle, which is the correct answer for the accounting principle that supports this reporting. Option 4 is the correct answer.
Step-by-step explanation:
Revenue is recorded when services have been performed or products have been delivered to customers. The accounting principle supporting this reporting is the revenue recognition principle. Revenue is defined as the income a company or organization receives from its normal business activities, usually from the sale of goods and services to customers. For instance, total revenue is calculated by multiplying the price of the product by the quantity sold, expressed as Total Revenue = Price x Quantity. In the context of government, revenue is crucial as it funds programs and pays for the operation of the government itself.
The revenue recognition principle is a cornerstone of accrual accounting, which dictates that revenue should be recognized and recorded at the point when it is earned and realizable, regardless of when the cash is actually received. This contrasts with the cash basis principle, which records revenue only when cash is received. The recognition of revenue is significant for accurate financial reporting and economic decision-making both for businesses and governments. It determines when to report income, directly affecting a company's financial statements.
The correct option that describes the accounting principle that supports the reporting of revenue when services are performed or products delivered is option 4, the revenue recognition principle.