Is Unearned Revenue A Current Asset Or A Current Liability?
Current assets are those economic resources that can easily be converted into cash or can be exchanged without losing much value while current liabilities are those obligations that a business has to pay within a short period typically one year or less.
Is Unearned Revenue A Current Asset Or A Current Liability?
Unearned revenue or deferred income is the amount that a company receives from the customers in advance or before providing goods or services.
The business is liable to provide the goods or services to the customers in the upcoming time which they already paid for. Once the business fulfills its obligation the unearned revenue will be recognized as income in the income statement until it, unearned revenue is recorded as a liability in the balance sheet.
In short, unearned revenue represents a short-term liability for a business that has been received from the customers in advance for a specific service or product that has yet not been provided. It can be recorded as a short-term liability if the service is performed within a year or recorded as a long-term liability if the service takes more than 12 months to complete.
How unearned revenue is presented in the balance sheet:
| Current Laibilites | |
| Accounts Payable | xxx |
| Accrued Expenses | xxx |
| Unearned/Deferred Revenue | xxx |
| Total Current Liabilities | xxx |
FAQs
What type of asset is unearned revenue?
Unearned revenue is not an asset but it is treated as a current liability until the obligations are fulfilled. It is recorded as deferred income in the balance sheet.
Why unearned revenue is not treated as an asset in the balance sheet of a company?
Because the company has received the amount but has not fulfilled the obligation yet, it is not treated as an asset until the obligation is fulfilled. Once the obligation is fulfilled it is recorded as (debit differed income and credit revenue account).
How unearned revenue is normally classified in the balance sheet?
Unearned revenue is normally classified as a short-term or current liability in the balance sheet.
Is unearned revenue an income, asset, or expense for a business?
Unearned revenue is a current liability for a business but once the obligation is fulfilled it becomes an income for a business.
What is the double entry for unearned revenue?
When unearned revenue is initially recorded:
- Debit: Cash (A Current Asset)
- Credit: Unearned Revenue (It shows the liability)
After fulfilling the obligation:
- Debit: Unearned Revenue
- Credit: Revenue Account (Unearned revenue is recognized in the income statement).
What is the difference between unearned revenue and unbilled?
Unearned revenue is the advance amount that the company already gets but the obligation is not yet delivered while unbilled means service is already delivered but the invoice is not sent by the company.
Is unearned revenue dangerous for a company?
Unearned revenue is not risky but if the obligation for unearned revenue is not delivered then it will damage the goodwill of a company.