Final answer:
The Klingon Company's practice of recording revenue from a machinery order on the day it was received violates the revenue recognition principle. Revenue should only be recognized when it is earned and delivery of goods or services has occurred, which accurately reflects the company's financial performance.
Step-by-step explanation:
The scenario presented where the Klingon Company records revenue from a large order of machinery the day the order was received, rather than when the revenue is actually earned or the product is delivered, is a violation of the revenue recognition principle. This accounting principle, which is a key aspect of accrual accounting, dictates that revenue should only be recognized when it is earned and when the delivery has occurred or services have been rendered, regardless of when the cash is actually received.
In this case, recording the revenue upon receiving the order is premature and can lead to misrepresented financial statements. This violates not only the principle of revenue recognition but also the matching principle, which states that expenses should be matched with the revenues they help to generate in the same accounting period. Following these principles ensures that financial statements provide a true and fair view of the company's financial performance and position.