3. Deferral of Revenue

What is unearned revenue?

Cash received in advance of providing products and services. Unearned revenues, or deferred revenues, are liabilities. When cash is accepted, an obligation to provide products or services is accepted.

Explain when deferral of revenue is used. (needs an adjustment later)

When payment is received for goods or services before they have been delivered or performed.

When do we defer or postpone reporting amounts received til?

Until the product or service is provided.

What should we do for the adjustment when we finally provide the product or service?

decrease liability by debiting unearned revenues (since we have provided the service we are no longer liable for it) and increase revenue by crediting the revenue account since we have now earned that revenue. (unearned revenues become revenues)

Unearned revenues are common in _______ events.

Unearned revenues are common in sporting and concert events because they receive cash from advance ticket sales but they perform/play later so the service has not yet been provided.

Review example under Unearned Consulting Revenue

Review Need-To-Know 3-2