Unearned Revenue Is An Asset

In accrual accounting revenue is only recognized when it is earned.

Unearned revenue is an asset. The company cannot recognize a revenue amount in the financial statements until the revenue is. And hence this is shown and recorded on the liability side of the company s balance sheet. It is a liability because the goods or services are yet to be arranged by the business against this pre payment. Deferred revenue or unearned revenue refers to advance payments for products or services that are to be delivered in the future.

Unearned revenue is a phenomenon in accrual basis accounting when a business has received payment for goods or services that it has not yet rendered to its customers. It is an advance payment from a customer that is expecting the delivery of services or products at a later date. This is advantageous from a cash flow perspective for the seller who now has the cash to perform the required services. Unearned revenue is the cash proceeds received by a company or individual for a service or product that the company or individual still has to deliver to the customer.

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. This is why unearned revenue is recorded as an equal decrease in unearned revenue a liability account and increase in revenue an asset account. A deferred tax asset is an asset on a company s balance sheet. Service revenue will in turn affect the profit and loss account in the shareholders equity section.

Freshbooks has online accounting software for small businesses that makes it easy to generate balance sheets and view your unearned revenue. Hence 1000 of unearned income will be recognized as service revenue. Unearned revenue is money received from a customer for work that has not yet been performed. It is essential to understand that while analyzing a company unearned sales revenue should be taken into consideration as it is an indication of the growth visibility of the business.

Unearned revenue sometimes referred to as deferred revenue deferred revenue deferred revenue is generated when a company receives payment for goods and or services that it has not yet earned. Moreover since the. Unearned revenue is also known as deferred revenue or deferred income. This makes sure the equation continues to balance.

Unearned revenue is listed on the business s balance sheet as a current liability not a contra asset. Therefore as we treat pre paid expenses as our asset this unearned revenue remains a liability for the company. Unearned revenue is money received by an individual or company for a service or product that has yet to be provided or delivered. The recipient of such prepayment records unearned revenue as a.

One example of unearned revenues would be prepayments on a long term contract.