Unearned Revenue

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.


Filed Under:

comments powered by Disqus
Hot Definitions
  1. Jensen's Measure

    A risk-adjusted performance measure that represents the average return on a portfolio over and above that predicted by the capital asset pricing model (CAPM), given the portfolio's beta and the average market return. This is the portfolio's alpha. In fact, the concept is sometimes referred to as "Jensen's alpha."
  2. Direct Bidder

    An entity that purchases Treasury securities at auction for a house account rather than on behalf of another party.
  3. Mortgage Modification

    A permanent change in a homeowner's home loan terms that makes the monthly loan payments affordable.
  4. Leveraged Benefits

    The use – by a business owner or professional practitioner – of their company’s receivables or current income to secure a loan whose proceeds then indirectly fund a retirement plan.
  5. Direct Consolidation Loan

    A loan that combines two or more federal education loans into a single loan. A Direct Consolidation Loan allows the borrower to make a single monthly payment. The loan is facilitated by the U.S. Department of Education and does not require borrowers to pay an application fee.
  6. Through Fund

    A type of target-date retirement fund whose asset allocation includes higher risk and potentially higher return investments "through" the fund's target date and beyond.
Trading Center