Final answer:
Under the accrual basis of accounting, revenue is recorded when the services or products are delivered, regardless of when the payment is made. This method matches revenue with the incurred expenses, providing an accurate financial picture.
Step-by-step explanation:
Under the accrual basis of accounting, revenues are recorded when services have been performed or products have been delivered to customers. This concept is fundamental to the accrual method, where transactions are recorded in the periods in which the events occur, even if the cash exchange has not been completed. Revenue recognition signifies the exact moment when revenues are realized and can be reported in the financial statements.
The principle is intended to match income with the expenses that brought that income, creating a more accurate picture of a company's financial health. For example, if a business performs a service in December but doesn't get paid until January, the revenue would still be recorded in December because that's when the service was completed. This method provides a better reflection of financial performance than the cash-based accounting method, which only records transactions when cash is exchanged.