A customer pays \$5,000 in advance for a service to be provided over the next year. How should this transaction be recorded initially?

• A. Record \$5,000 as a deferred expense, a liability.
• B. Record \$5,000 as a prepaid expense, an asset.
• C. Record \$5,000 as earned revenue, an asset.
• D. Record \$5,000 as unearned revenue, a liability.

Answer: (D)