The practical consequence is that money in your account may not be yours yet in accounting terms. A deposit for work you have not started is a liability rather than revenue, because you owe the customer either the work or their money back. An annual subscription paid upfront is recognised across the twelve months rather than all at once. A business treating both as immediate revenue will show a strong month followed by several weak ones and will misread its own performance repeatedly.
For a first year business the situation this bites hardest is prepayment. Taking a large deposit feels like a good month, and spending it feels reasonable because the cash is present. But the obligation to deliver remains, and if the work spans months while the cost of delivering it falls later, you have spent money you will need. This is one of the more common ways a business with genuine demand runs into trouble.
There is a related distinction worth knowing. Cash basis accounting records revenue when money moves, and accrual basis records it when the work is done. Smaller businesses are frequently permitted to use cash basis for tax purposes, which is simpler, and even then it is worth understanding the accrual picture for management purposes, because that is the one that tells you whether a strong month was performance or timing.
Where it matters most is any decision based on a period looking good. Hiring, committing to a lease, or increasing spending on the strength of a month that was actually three months of prepayment arriving at once is a decision made on a number that was not what it appeared to be.
Your accounting software can handle this correctly if it is set up to, using deferred revenue for prepayments, and it will not do so automatically. This is a reasonable thing to have your accountant configure once at the start rather than something to work out yourself, particularly if subscriptions or deposits are a normal part of how you sell.
There is a practical safeguard worth adopting if you take deposits regularly, which is holding that money somewhere other than your operating account until the work is delivered. A separate account for customer prepayments removes the temptation entirely and makes the obligation visible rather than notional. It costs nothing to set up, and it converts an accounting principle into a physical constraint, which is considerably more reliable than intending to remember that the balance is not yours.