Question

What type of account prepaid expenses or unearned revenues are?

What type of account prepaid expenses or unearned revenues are?

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Answer #1

Answer:- Prepaid expenses is a Real account as it comes in Balance sheet under the Current Assets. The concerned prepaid expense will be deducted from the related expense in the profit & loss account in order to identify the actual expenses related to that year .

Unearned revenue is a liability. It is revenue received but not earned yet. In other word payment received before a good is sold or a service is provided.

An example is rental income received in advance. Unearned revenue is recorded as a debit to Cash account and credit to Unearned Revenue account. Hence Unearned revenue is classified as a current liability on the balance sheet until it is recognized as earned during the accounting cycle.

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