When revenue is collected in advance before goods or services are delivered, it is initially recorded as:

Explanation

Core Concept: Unearned (or deferred) revenue is a liability because the business has an obligation to deliver goods or services in the future. Context/Distractors: Prepaid expenses represent cash paid in advance for expenses (an asset). Revenue is only recognized once earned. Exam Tip/Key Fact: As performance obligations are fulfilled, unearned revenue is debited and earned revenue is credited.