Unearned revenue is a type of liability that arises when a company receives payment in advance for goods or services that have not yet been delivered or performed. This occurs when a company receives payment for a service or product that will be provided or delivered in the future. We recorded the payment as unearned revenue until the service or product is provided or delivered, at which point it is recorded as earned revenue.
For example, a company that sells annual subscriptions for access to a service would record the payment as unearned revenue until the service is provided over the course of the year. Once the service is provided, the unearned revenue would be recognized as earned revenue.
Unearned revenue is a liability account, meaning that it represents an obligation to deliver goods or services in the future. It is also known as deferred revenue. This is because the revenue is recognized when the product or service is delivered, rather than when the cash is received