Accounting Demystified

Unearned Revenue

There are times when a customer will prepay for goods or services. In our everyday lives, we do this often—we pay annually for a magazine subscription, for instance. The company cannot record the money as revenue when it is received, since the company still has to provide the goods or services. If a customer prepaid for services in the amount of $10,000, the entry to record the receipt of the money is:

At the end of the period, the company has to determine whether any of these goods or services have been provided. If this is a magazine company and the unearned revenue is for subscriptions, the company will count how many issues ...