As you read and study the examples that follow, remember that you are viewing them through the eyes of the business. Deferrals related to revenue When a company receives a payment in advance for goods and services, the company must defer recognition of the revenue until the goods are shipped or the services are performed. However, the company will immediately deposit the cash. Technically, the company does not have claim to the cash until goods are shipped or services are performed. In fact, the claim to the cash belongs to the customer at the time the company receives and deposits the payment.
Unearned revenue is a balance sheet account a liability.
It represents amounts a company owes to others customers. Please notice that the name of this liability is a bit unusual. It has the word revenue in it, but it is not an income statement account. When the items sold are actually shipped, the company will recognize the revenue. In the accounting records, the company will decrease unearned revenue and increase owner s equity via revenue .