Which statement about upfront cash for future services is true?

Which statement about upfront cash for future services is true?

• A. Revenue is recognized immediately when cash is collected.
• B. Revenue is recognized as services are performed.
• C. Revenue is recognized only when billed.
• D. Revenue is recognized at the end of the contract.

Answer: (B)

Cash received upfront for services to be performed later isn’t revenue yet; it creates a liability called unearned (or deferred) revenue. Revenue is recognized as the services are performed, reflecting the ongoing performance obligation being satisfied. As you deliver the service over time, you convert that liability into actual revenue. This timing mirrors the moment you transfer control of the service to the customer, not when cash is collected or when billing occurs, and not necessarily only at the contract’s end.

Cash received upfront for services to be performed later isn’t revenue yet; it creates a liability called unearned (or deferred) revenue. Revenue is recognized as the services are performed, reflecting the ongoing performance obligation being satisfied. As you deliver the service over time, you convert that liability into actual revenue. This timing mirrors the moment you transfer control of the service to the customer, not when cash is collected or when billing occurs, and not necessarily only at the contract’s end.