What principle is used for recognizing revenue from the sale of goods?

The principle used for recognizing revenue from the sale of goods is that revenue is recognized when the risks and rewards of ownership are transferred to the buyer. This principle aligns with the accrual basis of accounting, which emphasizes that revenue should be recognized when it is earned, rather than when cash is received.

When the risks and rewards of ownership are transferred, typically upon delivery of the goods, it indicates that the seller has fulfilled their part of the sales transaction. At this point, the buyer assumes responsibility for the goods, and the transaction is considered complete from an accounting perspective.

Recognizing revenue at this stage also ensures that the financial statements reflect the economic reality of the transaction, providing a more accurate representation of the company’s performance and financial position. This principle is consistent with international accounting standards, specifically IFRS, which emphasize the need to recognize revenue in a way that reflects the transfer of control over goods and services.

In contrast, other options might imply different timing for recognizing revenue, which could lead to misleading financial reporting. For instance, recognizing revenue when payment is received could ignore sales made on credit, while recognizing it when goods are produced or when an invoice is issued doesn't take into account the completion of the transaction as viewed through the transfer of risks and rewards.