Accounting Demystified

Unearned Revenue

Any account whose title includes the word payable is a liability. In addition, there are some liabilities whose titles do not include the word payable. Unearned revenue is a liability. Unearned revenue represents money that has been paid to the company for work that has not yet been performed or goods that remain to be shipped. It cannot be considered revenue until the work has been done (or the goods have been shipped). Every time work that was prepaid is done, a portion of the unearned revenue is moved to Revenue (since it has now been earned). Let's assume that on June 27, 2002, we were paid $25,000 for work that we will perform in the future. The entry to record the receipt of the $25,000 is:

Now let's say that during July ...