Cash collected in advance is typically recorded as which on the balance sheet?

• A. Deferred Revenue
• B. Accounts Receivable
• C. Revenue
• D. Accrued Liabilities

Answer: (A)

When cash is collected before delivering goods or services, you’ve earned neither the revenue nor the expense yet—you’ve simply taken a payment in advance. On the balance sheet this is recorded as a liability because the obligation to provide the product or service remains. The standard label for this is Deferred Revenue (also known as unearned revenue). As you fulfill the obligation over time, you reduce this liability and recognize revenue on the income statement.

This distinction matters: Accounts Receivable would apply if you had billed the customer but not yet received cash. Revenue is recognized only when the performance obligation is satisfied, not at the moment cash is collected in advance. Accrued Liabilities would be for expenses incurred but not yet paid, not for prepayments from customers.