Why is deferred revenue categorized as a liability?

Deferred revenue is categorized as a liability because it reflects obligations to customers. When a company receives payment for goods or services before they are delivered or performed, it has a legal obligation to fulfill that commitment. This future obligation means the company has not yet earned the revenue, as the service or product has not yet been provided.

In accounting terms, until the service is rendered or the product is delivered, the revenue cannot be recognized on the income statement. Instead, it must be recorded as a liability on the balance sheet, indicating the company's responsibility to the customer. As the company fulfills its obligations over time, the deferred revenue is then recognized as actual revenue.

This categorization is critical for accurately representing the company's financial position; it ensures that stakeholders understand the resources the company owes to customers. Other options do not accurately describe the nature of deferred revenue or its implications for financial reporting.