Unearned Revenue

AAA

DEFINITION of 'Unearned Revenue'

When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can be thought of as a "pre-payment" for goods or services which a person or company is expected to produce to the purchaser. As a result of this prepayment, the seller now has a liability equal to the revenue earned until deliver of the good or service.

INVESTOPEDIA EXPLAINS 'Unearned Revenue'

From an accounting perspective, unearned revenue is a double-edged sword. The early cash flow to the firm is advantageous for any number of activities, such as paying interest on debt to purchasing more inventory. However, by accepting unearned revenue, the firm has then entered a legal obligation to deliver on the terms of the payment. For example, with a prepayment on a lease contract, the revenue is a liability until it has been earned.

RELATED TERMS
  1. Income

    Money that an individual or business receives in exchange for ...
  2. Earned Income

    Income derived from active participation in a trade or business, ...
  3. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to ...
  4. Passive Income

    Earnings an individual derives from a rental property, limited ...
  5. Revenue

    The amount of money that a company actually receives during a ...
  6. Expanded Accounting Equation

    The expanded accounting equation is derived from the accounting ...
Related Articles
  1. Handcuffs And Smoking Guns: The Criminal ...
    Options & Futures

    Handcuffs And Smoking Guns: The Criminal ...

  2. What Are Corporate Actions?
    Bonds & Fixed Income

    What Are Corporate Actions?

  3. Free Cash Flow: Free, But Not Always ...
    Markets

    Free Cash Flow: Free, But Not Always ...

  4. Putting Management Under The Microscope
    Options & Futures

    Putting Management Under The Microscope

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center