You report unearned revenue on your business’ balance sheet, a significant financial statement you can generate with accounting software. You record it under short-term liabilities (or long-term liabilities where applicable). Since it is a cash increase for your business, you will debit the cash entry and credit unearned revenue. Where unearned revenue on the balance sheet is not a line item, you will credit liabilities. At this point, you may be wondering how to calculate unearned revenue correctly. When a customer prepays for a service, your business will need to adjust its unearned revenue balance sheet and journal entries. Your business will need to credit one account and debit another account with the correct amounts using the double-entry accounting method.

From the date of initial payment, the payment is recorded as revenue on a monthly basis until the entirety of the promised benefits is confirmed to have been received by the customer. Unearned Revenue refers to customer payments collected by a company before the actual delivery of the product or service. If you have noticed, what we are actually doing here is making sure that the earned part is included in income and the unearned part into liability.

What type of account is unearned revenue?

If the service is eventually delivered to the customer, the revenue can now be recognized and the following journal entries would be seen on the general ledger. For example, imagine that a company has received an early cash payment from a customer of $10,000 payment for future services as part of the product purchase. Online retailers generally collect payment in advance of shipping goods to the customer. In this case, the payment is considered unearned revenue until the goods are shipped. This is because the retailer has an obligation to deliver the goods to the customer, but has not yet fulfilled that obligation.

Rent Receivable is the title of the balance sheet asset account which indicates the amount of rent that has been earned, but has not been collected as of the date of the balance sheet. In economics ‘unearned income’ has different meanings and implications depending on the theoretical framework used. To classical economists, with their emphasis on dynamic competition, income not subject to competition, mainly income from land titles, are ‘rents’ or unearned income.

Is unearned revenue debit or credit?

Recognizing deferred revenue is common for software as a service and insurance companies. On a balance sheet, the “assets” side must always equal the “equity plus liabilities” side. Hence, you record prepaid revenue as an equal decrease in unearned revenue and increase in revenue .

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Journal Entries for Dividends (Declaration and Payment)

This is because the business has fulfilled its obligation to the customer, and the revenue can be considered earned. Your business needs to record unearned revenue to account for the money it’s received but not yet earned. Recording unearned revenue is important because your company can’t account for it until you’ve provided your products or services to a paying customer. It’s important to rely on accounting software like QuickBooks Online to keep track of your unearned revenue so that you can generate accurate and timely financial statements each accounting period. Unearned revenue is recorded on a company’s balance sheet as a liability.

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