Final answer:
A business should not record an expected cash inflow as an asset until the inflow is virtually certain, which aligns with the conservatism and revenue recognition principles of accounting.
Step-by-step explanation:
Whether a business should record an asset for an expected cash inflow from a lawsuit where it is the plaintiff depends on the accounting principles it follows. Under Accrual Accounting and following the conservatism principle, a business is not advised to record an asset until the inflow is virtually certain. Until a court decision is final and the payment is assured, recognizing an asset on the balance sheet may not be appropriate. Furthermore, according to the revenue recognition principle, revenues (and associated assets) are only recognized when earned, and there's a reasonable certainty of being received. An anticipated lawsuit victory does not meet these criteria until finalized.
When a business is the plaintiff in a legal case, it means they are suing someone else. In this situation, if a business has sued one of its suppliers for defective products and their lawyers are reasonably certain that they will win and be awarded $1 million, the business should record an asset for the expected cash inflow. The expected cash inflow represents an economic benefit that the business is likely to receive, and therefore meets the criteria for recognition as an asset.