Unearned Revenue

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Unearned Revenue

Revenue for a company from a project that has not been completed or a product that has not been delivered. A common example of unearned revenue is prepayment for a lease or asset. Unearned revenue is a liability for the company until the project has been completed or the product delivered; at that point, it becomes earned revenue.

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Therefore, when a company sells a gift card, cash has been received, but goods or services have yet to be provided--the seller records this increase in cash along with a liability for unearned revenue.

When it delivers the digital camera, XYZ immediately recognizes $ 162 of previously unearned revenue from the gift card.

The company will record the entries shown in Exhibit 6 to reverse the entries shown in Exhibit 1, which initially record unearned revenue.

Lost and found: revenue recognition standard offers advice on booking liabilities and breakage income for unredeemed gift cards

Similarly, the effects of the beginning and ending balances of unearned revenue are opposite upon conversion as well (ending balance subtracted and beginning balance added).

Using the basic accounting equation to help students understand differences between the cash basis and accrual basis

AVMD recognizes all expenses on the date they are incurred regardless of whether they relate to recognized or unearned revenue whereas unearned revenue (which is generated by current expenses) is unable to be recognized in the current period.

Advanced Medical Institute Inc. Announces Results for the Third Quarter and Nine Months Ended March 31, 2006