The revenue recognition principle is the adjustments in accounting pdf of making adjusting entries that pertain to unearned and accrued revenues under accrual-basis accounting. They are sometimes called Balance Day adjustments because they are made on balance day. Based on the matching principle of accrual accounting, revenues and associated costs are recognized in the same accounting period.
However the actual cash may be received or paid at a different time. Adjusting entries for prepayments are necessary to account for cash that has been received prior to delivery of goods or completion of services. A company receiving the cash for benefits yet to be delivered will have to record the amount in an unearned revenue liability account.
Then, an adjusting entry to recognize the revenue is used as necessary. The cash is paid up-front at the start of the subscription.