Does Unearned Revenue Have A Normal Credit Balance

The accounts that have a normal credit balance include contra asset liability gain revenue owner s equity and stockholders equity accounts.

Does unearned revenue have a normal credit balance. Of the 30 000 unearned revenue 6 000 is recognized as income. Notice the two outside ones assets expenses are the debits. Something important to keep in mind. The normal balance of any account is the balance debit or credit which you would expect the account have and is governed by the accounting equation.

Unearned revenue is a liability for the recipient of the payment so the initial entry is a debit to the cash account and a credit to the unearned revenue account. When you record unearned fees or revenue it only hits the balance sheet. Unearned revenues are recognized when customers pay up front for the products services. This changes if advance payments are made for services or goods due to be provided 12 months or more.

Debit cash or ar asset account credit unearned revenue liability it is a liability until the. Do not think about the affect on the overall. Unearned revenue is usually disclosed as a current liability on a company s balance sheet. Freshbooks has online accounting software for small businesses that makes it easy to generate balance sheets and view your unearned revenue.

This makes sure the equation continues to balance. Unearned revenue is money received from a customer for work that has not yet been performed. In contrast accounts that normally have a debit balance include the asset loss contra liability owner s drawing dividend and expense accounts. This is why unearned revenue is recorded as an equal decrease in unearned revenue a liability account and increase in revenue an asset account.

We are simply separating the earned part from the unearned portion. Each of the accounts in a trial balance extracted from the bookkeeping ledgers will either show a debit or a credit balance. In the entry above we removed 6 000 from the 30 000 liability. Accounts with balances that are the opposite of the normal balance are called contra accounts.

Liabilites debit credit. This is advantageous from a cash flow perspective for the seller who now has the cash to perform the required services. The three inside ones are the credits. Expense debit credit.

Let s illustrate revenue accounts by assuming your company performed a service and was immediately paid the full amount of 50 for the service. Hence contra revenue accounts will have debit balances.