The Differences Between the Revenue Recognition Principle and the Expense Recognition Principle

The revenue recognition principle requires that companies recognize revenue in the accounting period in which the revenue is earned.

The expense recognition principle requires that companies match expenses with revenues - all costs incurred to generate revenue appearing on a given period’s income statement should appear as an expense on the same statement.

Both principles are important – these principles stop companies from overstating revenues; companies must show expenses in a realistic manner.