What is created when consideration is received before satisfaction of performance obligations?

When consideration is received before the satisfaction of performance obligations, a deferred income liability is created. This occurs because the payment has been collected; however, the goods or services have not yet been delivered. The entity owes the customer the performance of a service or delivery of goods in the future, thereby creating an obligation.

This deferred income liability represents the company's commitment to provide the promised service or product in the future. It is recognized as a liability on the balance sheet until the obligations are fulfilled. Once the performance obligations are satisfied, the amount in deferred income is recognized as revenue, reflecting the transfer of control over the goods or services to the customer, in accordance with the revenue recognition principles outlined in IFRS 15 or similar accounting standards.

The other choices do not accurately reflect the situation. Revenue recognition occurs only when performance obligations are met, which is not the case here. An account receivable arises when a sale has been made on credit, not when cash has been received before the performance obligation is fulfilled. A contract asset, on the other hand, reflects a right to consideration in exchange for goods or services that the entity has transferred to the customer when the payment is contingent on future performance. However, this concept applies after the entity has performed its obligations,