Unearned Revenue
Advance payments received for goods or services not yet delivered, recorded as a liability until earned through fulfilling the underlying obligation to customers.
Unearned Revenue
A liability representing advance payments received for goods or services that have not yet been delivered or performed, also called deferred revenue.
For instance, when a magazine publisher collects $36 for a one-year subscription, it initially records the full amount as unearned revenue and then recognizes $3 of revenue each month as issues are delivered.
Unearned revenue represents a company’s obligation to deliver products or services in the future. While providing immediate cash flow benefits, it creates a performance obligation that must be fulfilled. As goods are delivered or services performed, unearned revenue is systematically recognized as earned revenue on the income statement.