UNEARNED REVENUE Meaning and
Definition
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Unearned revenue refers to the income received by a company in advance of providing goods or services to the recipient. Also known as deferred revenue or prepaid revenue, unearned revenue represents the obligation of the company to fulfill the promised product or service in the future. It is recorded as a liability on the balance sheet until the earnings process is complete.
When a customer makes a payment in advance for a product or service, the amount received is categorized as unearned revenue. This usually occurs in industries like subscription-based services, software licensing, or where products are delivered over a long period. Until the company fulfills its obligation, the payment received is considered a liability because the company owes the customer the promised goods or services.
Over time, as the company satisfies its obligations, the unearned revenue is gradually recognized as revenue in the income statement. This is usually done systematically over the period in which the goods or services are provided, by matching the recognized revenue with the corresponding costs incurred. The amount recognized as revenue reduces the unearned revenue liability, reflecting the use or delivery of the promised product or service.
It is important for companies to accurately track and report unearned revenue on their financial statements, as it impacts their financial health, profitability, and taxes. Failure to accurately account for unearned revenue may result in misstated financial statements and can potentially lead to legal and regulatory consequences.
Common Misspellings for UNEARNED REVENUE
- ynearned revenue
- hnearned revenue
- jnearned revenue
- inearned revenue
- 8nearned revenue
- 7nearned revenue
- ubearned revenue
- umearned revenue
- ujearned revenue
- uhearned revenue
- unwarned revenue
- unsarned revenue
- undarned revenue
- unrarned revenue
- un4arned revenue
- un3arned revenue
- unezrned revenue
- unesrned revenue
- unewrned revenue
Etymology of UNEARNED REVENUE
The etymology of the word "unearned revenue" can be broken down as follows:
1. Unearned: It is derived from the Old English word "unyrned", which means "not earned" or "not gained by effort". The prefix "un-" is a negating prefix, indicating the opposite or absence of something.
2. Revenue: It comes from the Old French word "revenue", which is derived from the Latin word "revenire", meaning "to return". In the context of accounting and finance, revenue refers to the income or earnings generated by a company or organization.
Therefore, "unearned revenue" refers to income or revenue that has not been earned through the provision of goods or services at the time it is received. It represents upfront payments received before fulfilling obligations, such as advance payments for subscriptions or services yet to be rendered.
Similar spelling words for UNEARNED REVENUE
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