Technical definition
Cash received before the entity has delivered the promised goods or services, initially recognized as a liability.
How it works
The entity owes future performance. As the obligation is satisfied, the liability is reduced and revenue is recognized, often proportionally over the service period.
Everyday example
$2,400 received for six months of support creates a liability; $400 becomes revenue each month as support is delivered.
Common pitfall
Receiving cash can increase liabilities rather than profit.