Which principle states that revenue should be recognized when earned and related expenses recognized in the same period?

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The main concept is the Matching Principle in accrual accounting. It states that revenue is recognized when it is earned and the related expenses are recognized in the same period to match the costs with the revenues they generate. This alignment gives a true picture of profitability for that period, regardless of when cash changes hands.

Revenue recognition when earned means the business records revenue when the earning process is substantially complete and collection is reasonably assured, not just when cash is received. Expenses recognized in the same period are the costs that helped produce that revenue, recorded in the period in which the revenue is earned, even if payment happens later.

So, the statement that revenue is recognized when earned and expenses are recognized in the same period is the one that reflects this approach. It wouldn’t fit cash-basis practice, where revenue is recorded only when cash is received and expenses only when cash is paid, or when recognition is left to discretion rather than aligned with performance.