Final answer:
The core revenue principle states that revenue should be recognized when it is earned, irrespective of when it is received. This aligns with accrual accounting, ensuring a fair representation of a company's earnings. Total revenue can be calculated by multiplying the selling price by the quantity sold.
Step-by-step explanation:
The core revenue principle, which is fundamental to accrual accounting, dictates that revenue should be recognized when it is earned, not necessarily when it is received. This is often stated as revenues are recognized when they are realizable or realized and when they have been earned, regardless of the timing of the cash flows. This principle, therefore, aligns with option 1) Revenue should be recognized when it is earned, regardless of when it is received. This approach is in contrast to cash-basis accounting, where revenue is recorded upon receipt of cash.
Total revenue for a business is calculated as the Price of the good or service times the Quantity sold. This measurement is an essential part of understanding a business's financial performance. For example, if a product is sold for $10 and 100 units are sold, then the total revenue is Total Revenue = Price x Quantity or $10 x 100 = $1000.
The core revenue principle helps ensure that the financial statements of a company provide a fair and consistent representation of the company's earnings during a period. Proper recognition of revenue, according to this principle, is crucial for accurate financial reporting and analysis.