What Is Unearned Revenue In Accounting

Unearned revenue sometimes referred to as deferred revenue deferred revenuedeferred revenue is generated when a company receives payment for goods and or services that it has not yet earned.

What is unearned revenue in accounting. Unearned revenue is the number of advance payments which the company has received for the goods or services which are still pending for the delivery and includes transactions like amount received for the goods delivery of which is to be made on the future date etc. Any time someone gives money to another person wins a prize pool in a contest or lottery inherits money from a deceased relative or receives alimony or workers it is considered unearned revenue. This is money paid to a business in advance before it actually provides goods or services to a client. When the goods or services are provided an adjusting entry is made.

Just don t forget that you actually need to deliver on the project or services you ve promised your client. Unearned revenue is money received by an individual or company for a service or product that has yet to be provided or delivered. Less common forms of unearned revenue include gifts prizes inheritances and other unearned income. In accrual accounting revenue is only recognized when it is earned.

Unearned revenue is helpful to cash flow according to accounting coach. Unearned revenue is money received from a customer for work that has not yet been performed. If a customer pays for good services in advance the company does not record any revenue. This is advantageous from a cash flow perspective for the seller who now has the cash to perform the required services.

Unearned revenue s definition a liability account that reports amounts received in advance of providing goods or services. When the goods or services are provided this account balance is decreased and a revenue account is increased.