Unearned revenue is reported on the balance sheet as a liability and represents amounts paid to an entity in exchange for future services and/or goods. True or False

Question

Business

Cloe Meadows

22 February, 20:21

Unearned revenue is reported on the balance sheet as a liability and represents amounts paid to an entity in exchange for future services and/or goods. True or False

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Leonidas Webb · Answer 1

True

Explanation:

Unearned revenue is cash received from a customer before goods are delivered or services offered. It is an amount received for work that is not yet done. Unearned revenue is a liability to the business. It may also be called deferred revenue.

As per the accruals principle, revenue is recognized when the time when an economic activity that generates income has happened. A sale of either a service or good has to happen, or the business has to incur an expense. A payment whose work is yet to be done is not recognized as revenue. The journal entry is to debit to the cash account and credit the unearned revenue account.