Final answer:
The revenue will be recognized in Year 2 when the services are rendered.
Step-by-step explanation:
Revenue recognition is based on the accrual accounting method, which states that revenue should be recognized when it is earned, regardless of when payment is received. In this case, the services are not rendered until Year 2, so the revenue would be recognized in Year 2. This is based on the principle of revenue recognition, which requires that revenue be recognized when it is earned and realizable.
This concept can also be seen in the example given. The customer pays for the services in Year 1, but the revenue is not recognized until the services are provided in Year 2. This ensures that revenue is recorded in the correct period and matches the expenses associated with providing the services.