Question

3. Define an Unearned Revenue and discuss why this account is not yet a revenue.

Answer 1

An unearned revenue is a prepayment for goods or services that will be delivered at a later date. It is usually money received by a business or individual from a customer for work that has not yet being performed.

This account is not yet a revenue and is accounted for as a liability. If it was to be recognized as revenue at once, revenues would initially be overstated, and then understated for the additional periods during which the revenues should have been recognized.