Question

Define “unearned revenue.” Provide an example.

Answer 1

Unearned Revenue refers to those revenue which has to be performed but cash is received earlier for those services which has to perfomed yet and those goods which has to be delivered yet.

Unearned Revenue is recorded under balance sheet under the head of current liabilities and when service is performed or goods is delivered then it is recorded as actual revenue.

For example : ABC company received advance of $1000 for subscription of news paper but news paper is not delivered yet so now ABC company will record subscription amount as a unearned Revenue.

Another example: Mr. X is an advocate and received $500 from his client for providing services in coming financial year , now advance fees become unearned service Revenue.