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Unearned Revenue: Definition and Meaning
Definition
Unearned revenue is another term for deferred revenue: money received before a business has earned it by providing goods or services.
Why It Matters
Unearned revenue is generally recorded as a liability until the related performance occurs. This prevents a business from overstating revenue and profit in the period when cash is received.
The timing of recognition depends on contract terms, the nature of the promised goods or services, and the applicable accounting framework.
Example
A customer prepays for a future training program. The payment is initially recorded as unearned revenue and recognized as revenue when the program is provided.
Related Terms
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