My number one takeaway from this article and the comments here on the article: Learn basic accounting, especially how to read a balance sheet and financial stat

My number one takeaway from this article and the comments here on the article: Learn basic accounting, especially how to read a balance sheet and financial statements. The time spent in the short term will more than pay dividends in the long term. As other commenters have noted in greater detail, how future revenue is booked depends on your accounting method. If you use the "cash" method (default for everything except C Corporations), meaning that you generally book revenue when received and expenses when paid. Under the accrual method (C Corporations), revenue is accrued when earned and expenses when owed regardless of when payment is made or received. Ryan's company was a C-Corp, so the accrual method applies. The $175k prepayment is thus not booked on the P&L until earned. However, it is booked on the balance sheet as an asset. To account for the fact that the $175k has not yet been earned, it is offset by a "reserve account" liability (i.e,. "refund reserve" or "unearned income reserve") to reflect the amount that the $175k could have to be reimbursed to customers. Generally, the reserve account is less than or equal to the prepayment and reflects the dollar amount of uncertainty as to how much of the prepayment will be retained. Thus, the $175k could increase the net assets of the company by anywhere from $0 to $175k.