What is it called when cash is received from customers before the revenue is earned?

When cash is received from customers before the revenue is earned, it is commonly referred to as deferred revenue. This concept is fundamental in accounting as it pertains to the recognition of revenue based on the accrual basis of accounting, which emphasizes that revenue should be recognized when it is earned, not necessarily when cash is received.

In this situation, the company has an obligation to provide a good or service in the future, meaning that until the good or service is delivered, the cash received is considered a liability rather than income. This liability reflects the company's responsibility to fulfill its commitment to the customer. As the company performs the service or delivers the product, the deferred revenue is then recognized as actual revenue on the income statement.

This term is interchangeable with unearned revenue, which is often used in practice as well. However, the key reason for using “deferred revenue” in the context of this question is to emphasize the accounting principle of recognizing revenue at the appropriate time, aligning with the foundation of accrual accounting.