Final answer:
An accrual-method business can account for advance payments using the deferral-recognition method or the recognition method. The deferral-recognition method records the payment as a liability until goods or services are delivered, while the recognition method can allow immediate revenue recognition under certain conditions.
Step-by-step explanation:
When an accrual-method business receives an advance payment for goods it will provide to customers in the future, the business may account for the prepayment under the deferral-recognition method or the recognition method. The deferral-recognition method involves recognizing the payment as a liability (unearned revenue) and then recognizing revenue as goods or services are actually delivered. The recognition method, in some cases, allows for the recognition of the payment as revenue before the goods or services are delivered if certain conditions are met. The selection between these two methods can impact the timing of revenue recognition on the company's financial statements.