Which of the following scenarios would result in the recognition of deferred revenue?

• A. A company performs services and bills the customer, but has not yet received payment.
• B. A company receives payment for services already performed.
• C. A company receives cash in advance for services to be performed in the future.
• D. A company incurs expenses but has not yet paid for them.

Answer: (C)

Verified step by step guidance

1. Understand the concept of deferred revenue: Deferred revenue is a liability that arises when a company receives payment in advance for goods or services it has not yet delivered or performed. The company owes the service or product to the customer in the future.
2. Analyze each scenario provided in the problem: For each scenario, determine whether it involves receiving cash in advance for services or goods that have not yet been provided.
3. Scenario 1: 'A company performs services and bills the customer, but has not yet received payment.' This does not result in deferred revenue because the company has already performed the service. Instead, this would result in accounts receivable.
4. Scenario 2: 'A company receives payment for services already performed.' This does not result in deferred revenue because the services have already been completed. The payment would be recognized as revenue.
5. Scenario 3: 'A company receives cash in advance for services to be performed in the future.' This is the correct scenario for deferred revenue because the company has received payment but has not yet performed the services, creating a liability to deliver the services in the future.