Unearned Service Revenue Journal Entry

Unearned service revenue journal entries.

Unearned service revenue journal entry. Unearned revenue is money received for goods and services that have not yet been provided. Advances from customers can be initially recorded as unearned service revenue a liability or service revenue income. There are two ways of recording unearned revenue. In order to ensure your net profit is accurate you must record unearned revenue properly.

Unearned revenue is money received from a customer for work that has not yet been performed. The journal entry is given below. Journal entries of unearned revenue. The following unearned revenue journal entry example provides an understanding of the most common type of situations where such a journal entry account for and how one can record the same as there are many situations where the journal entry for unearned revenue pass it is not possible to provide all the types of examples.

Cash dr unearned revenue cr 2. 1 the liability method and 2 the income method. This is advantageous from a cash flow perspective for the seller who now has the cash to perform the required services. The adjusting entry for unearned revenue depends upon the journal entry made when it was initially recorded.

At the end of the period unearned revenues must be checked and adjusted if necessary. 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 the unearned revenue is earned by delivering related goods and or services the unearned revenue liability decreases and revenue increases. At the end of 12 months all the unearned service revenue unearned will have been taken to the service revenue account earned.

This is more fully explained in our revenue received in advance journal entry example. Unearned service revenue is considered a liability because the company has an obligation to perform services for the amount it collected in advance.