2 Week DQ2 What is the revenue recognition principle? What is the expense recognition principle? Why are they important to financial reporting? In order for organizations to provide reliable, relevant, and transparent financial information to owners, managers, investors, lenders, and the IRS they must use accrual based financial accounting systems. The revenue recognition principle necessitate that organizations recognize their revenue during the accounting time period that it is earned, not necessarily received. The time period that the income is earned is considered the time period in which the service was performed or the credit was extended. The expense principle recognition is used to match expenses with revenues during the period of time when the service is extended to generate the revenue. These two principles are important to accrual based financial reporting and are part of the generally accepted accounting principles (GAAP). It is also important because accrual based accounting is more accurate for lenders, investors, managers, and employees to know exactly where the organization stands financially at a specific point in time. References Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons.