Under what condition might a company collect cash from a customer but not recognize it as revenue immediately?

A company may collect cash from a customer but not recognize it as revenue immediately when services will be provided in the future. This scenario aligns with the revenue recognition principle, which stipulates that revenue should only be recognized when it is earned, meaning that the goods or services have been delivered or performed. In this case, since the company has not yet provided the service, it cannot recognize the cash received as revenue, even though the cash has been collected. Instead, the amount collected would be accounted for as a liability (such as unearned revenue) until the service is rendered.

In contrast, if a loan is received or a product is shipped, the nature of those transactions typically involves immediate recognition of either interest income or revenue, respectively. Similarly, payment for services not yet delivered leads to the recognition of a liability, and pending invoices do not impact cash collection or revenue recognition. Thus, the condition of future service provision is crucial for understanding why cash collected is not recognized as revenue immediately.