Final answer:
Revenues received in advance for future services are recorded as a liability called unearned or deferred revenue on the balance sheet. This results in an initial increase in assets and liabilities. Over time, as the services are provided, the liability is reduced and revenue is recognized.
Step-by-step explanation:
When a company receives revenues in advance for services that will be provided in the future, the correct accounting treatment is to record the amount as a liability on the balance sheet, specifically under a category known as unearned revenue or deferred revenue. This reflects the company's obligation to deliver services or products in the future. As services are provided over time, the company would then recognize the revenue, decreasing the liability and increasing actual revenue on the income statement.
The impact on the balance sheet includes an increase in cash or equivalents under current assets when the advance payment is first received, and an equal increase in unearned revenue under current liabilities. Over time, as the service is performed, the liability decreases and revenue is recognized in the income statement. The recognition of actual revenue will not affect the cash directly at that stage because the payment has already been made.