Unearned Revenue

Loading the player...

What is 'Unearned Revenue'

Unearned revenue is 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.

BREAKING DOWN '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. Unearned Discount

    Interest that has been collected on a loan by a lending institution ...
  2. Unearned Interest

    Interest that has been collected on a loan by a lending institution ...
  3. Unearned Income

    Any income that comes from investments and other sources unrelated ...
  4. Unearned Premium

    The premium corresponding to the time period remaining on an ...
  5. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's ...
  6. Earned Income

    Income derived from active participation in a trade or business, ...
Related Articles
  1. Economics

    What is Unearned Revenue?

    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.
  2. Investing

    What does Deferred Revenue Mean?

    Deferred revenue is advanced payments received by a company for products or services that it has not yet rendered or shipped. Another term for deferred revenue is unearned revenue. Whereas normal ...
  3. Bonds & Fixed Income

    The Risks Of Mortgage-Backed Securities

    Find out how weighted average life guards against prepayment risk.
  4. Investing

    What's a Liability?

    A liability is a debt. It is an obligation that arises during the course of business and represents a third-party claim on the company's assets. A liability can arise in a number of different ...
  5. Professionals

    Revenue Analyst: Job Description & Average Salary

    Learn what a revenue analyst does and what skills are needed to succeed in the position. Determine the education and experience required to work in this field.
  6. Investing

    3 Major Risks For Annaly’s Investors

    Thanks to its double-digit dividend yield, Annaly Capital Management has long been a favorite among income-seeking investors.
  7. Savings

    All About Income

    Income is the money you or a business earns by providing goods or services, or through investments.
  8. Investing

    What's Marginal Revenue?

    In microeconomics, marginal revenue is the additional revenue generated by increasing sales revenue by one unit. Another way of saying this is that the marginal revenue is the revenue generated ...
  9. Professionals

    Revenue Analyst: Career Path & Qualifications

    Learn more about the duties of a revenue analyst and the qualifications needed for the position, along with the career path for these professionals.
  10. Investing

    S&P 500 Index: A Revenue Case Study

    Discover the breakdown of aggregate total revenue of S&P 500 companies, including how much revenue is earned by country, industry and geographic location.
RELATED FAQS
  1. Does unearned revenue affect working capital?

    Learn how an unearned revenue, or deferred revenue, account affects a company's current liabilities and calculation of the ... Read Answer >>
  2. What is the difference between accrued revenue and unrealized revenue?

    Understand if there are any differences between accrued revenue and unrealized revenue. Learn about unearned revenue and ... Read Answer >>
  3. Can unearned rent be considered deferred revenue?

    Learn whether unearned rent can be considered deferred revenue. Understand what accounting practices are used to account ... Read Answer >>
  4. What are the advantages and disadvantages of horizontal integration?

    Understand the criteria for recognizing revenue recognition. Learn the principles behind when a company can consider its ... Read Answer >>
  5. Why is deferred revenue listed as a liability on the balance sheet?

    Understand why deferred revenue is listed as a liability on a company's balance sheet. Learn what is needed to recognize ... Read Answer >>
  6. What is the difference between deferred revenue and accrued expense?

    Understand the differences between deferred revenue and accrued expenses. Learn how each is recognized on the balance sheet ... Read Answer >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  3. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  4. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  5. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  6. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center